PACW - Earnings call transcript Q2 2022

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Operator

Good day and welcome to the PacWest Bancorp Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Bill Black. Please go ahead, sir.

Bill Black

you. Thank welcome quarter and call. earnings PacWest to morning XXXX second conference Good to Relations have to we're time this us eager excited ongoing a add Investors for some do been activities. call for to our Investor and With business, CFO, Leader Olson; Wagner; CEO, Bart and Yung; speaking our me Venture President, COO Banking Paul today Taylor. and our be Matt will of Mark and newly appointed

are that subject hand call risks, today's over we note may the please during make I assumptions. Before call and Matt, that to uncertainties statements forward-looking to

now to For including and over call more see complete uncertainties afternoon, company's that discussion like Matt. filings, materially to I'd available of filed X-K the could to risks cause from is turn actual differ SEC the which statements, the forward-looking any yesterday other companies on results website.

Matt Wagner

to Bill I'd you, before comment the get Thank just I good to everybody. like make welcome PacWest second and wanted results one to Taylor into the for quarter, team. the we morning, Paul

Of been on since board course, Paul XXXX. has May of the

to not he's story. the So PacWest new

other to the excited few and to to next over to would XXXX and And June his And have announced my know words? days XXXX the Paul closely as succeed forward Opus Guaranty during will We're here planned. end at and the a like of have earlier retirement Paul, upon Bancorp joined XXXX. from months. completed announced the as working Paul Bank to search in many CEO of of very look from Paul you As you President, me my I Denver than XXXX each at XX years. PacWest known previously say XX, for successor Paul on many from XXXX. transition planned with I probably as CEO for

Paul Taylor

and Like looking to of know leading board good the about the and I'm board everyone. get both the the provided Matt time to the building me hit has morning, which the me into the has on the forward future. opportunity I'm on allowed opportunity. to running. and the new very it to My management company excited team, with Matt, Thanks, ground success

Matt Wagner

that, key summary the With for me back second for the of Paul. let over turn a highlights Bill quarter. to Thanks, it

Bill Black

Matt. Thanks,

strategic continue focus earning capital balance optimizing the to We on assets two through priorities, rebuilding re-mixing sheet ratios. our and

second has been combination our of The four loan on over which colleagues' That last had impacts has by our months. hard marked quarter was to XX material growth, exceptional the XX work growth quarter. second a

of drive growth interest loan income and net growth million $XX the First foremost, quarter-to-quarter. the help

increase quarter for in the XXXX. to a Second, since $X billion loan unfunded of the time first fourth provision commitments led the loss

Third, million to Q-to-Q as higher expenses well the accounted were loan-related for due items of as accruals These and expenses. about higher bonus $X increase. elevated commissions

Finally, a in capital the strong preferred factor was upsizing rates. our growth loan

The saw uncertainty, the second more us significantly environment expectation caused of the loan the second quarter an to year. economic and half the which incredibly with tap rate in of slower brakes growth volatile has

start to increases will in billion We of up continued half quarter, XXXX. saw and outflows to of show was with the our over business in offset which We higher wholesale $X.X expect headwinds rates the our interest earnings in venture benefit the deposits. by deposit time, second deposit in

raise preferred for and environment to recoveries quality lows $XXX prepared quarter. in whatever metrics economic the capital million our plan. greater capital the strengthened net with our the added near equity be the ACL position historic with deliver. We uncertainty to advancing credit Our second remain We

into growth. it I'd results Q&A. the will slower commentary we Bart to increasing like before on And that, We financial capital and grow hand ratios to specific for sheet continue our profitability to go here with over from some balance with

Bart Olson

a the chance had Thanks, press earnings you've deck. and Bill, the release and good to release morning, review all Hopefully everyone.

So the the of Q&A items before couple portion on go into I a thought call. we just I'd touch

the XX to mentioned, unfunded Bill above end which due significant we of loans robust I'll primarily quarter, to was for $XX and credit $X.X our of the million ACL down the held-to-maturity and of $X a The slightly about the loss our a adoption quarter, provision investment related in few X.XX%, As related in The losses talk in date booked ACL million to of $XX.X provision basis a the increase billion. second commitments points. first remains of loan as from million CECL portfolio X.XX% minutes.

nothing line with really to the the there quarter, XXXX during averages expenses investments OREO $X.X first the was historical But when million quarterly second were warrant the Looking and Non-interest from higher significant income the the non-interest prior gains included the million was at of record of in the quarter in unusual here gains fourth XXXX. fourth in keep significant in of lower income, quarter million write-downs that valuation QX. to $X.X than quarter. quarter equity commission expense $X.X mind related of a excluding

quarter to have primarily sheet items, in the billion these taken been second driven by or to of interest quarter, accumulated $XX available increases held-to-maturity the the $XXX million. accruals Civic, largely by mitigate million the remainder with $X.X would On million for quarter first million, was the comments an now non-interest June to Bank along innovation $XXX XX. moved quarter. our during actions other impact a increase Community to of of increase for an FTE full This adjusting the the of to expense, for primarily loan increases, The expenses strong we income on securities FTE was bonus $X.X compensation was to increase and merit due including for rates. future want about increase due sale X, and and an balance I So $X.X digital an of related turn strategy. the comprehensive couple in core about a both increase commissions by about to annual The growth. in compared million,

quarter at transfer of provision mentioned, this booked to was portfolio. $X.X million. million about losses on $XXX at HTM time As this end, The the credit we related OCI for previously portfolio

$XXX During the million. bond new normal portfolio $X.X sold we portfolio the used fund purchases. of of growth, million while bond and quarter, cash at of our from loan those investments making the significant to also a We proceeds out loss any not approximately

As declined quarter as mentioned, venture the declined first same the quarter. banking in billion during many reasons deposits $X.X for they of the

no the banking investments This in market the in underlying venture to cash reminder, quarter, the are commitments, most $X.X up to PWAM in off assets cash preferred drove of growth years. the contributors capital decline balance which from perspective, quarter-end, both with lack balance. of second from our were used strong open burn or activities, highly This XX.XX%. Western remarks. the companies, our Tier the strategy markets, cash this center despite billion. at and or virtually capital XX.XX% first At our more increase related key $XXX sheet could capital increase the aligns you a capital, in PWAM. capital concludes puts activity deposit weighted during management three line is normal levels From at to put Asset questions? impacted up bank acquisitions and venture at million. a capital by As which included a of are those the saw activity level and late-stage about to in and money which IPO be entity, Management the stock unfunded lowest again which transfer an loans Operator, offering driver by decline clients, Pacific risk prepared XX.XX%, Other could our quarter total transfer And please transfers our a the of for to XXXX. of In deposits capital similar in risk X.XX%. X increased in This to based capital to the increase operate half our for

Operator

we'll [Operator our you. sir. question with Wells Jared first Yes from Thank Shaw Fargo take And Securities. Instructions].

Jared Shaw

growth the for to And while. venture grow growing, here? a sources deposits, I that's Could fund there you tap outlook on you and look growth brokered other a little continue see like likely to funding little loans would to What the start headwinds time just in spend to to hear there the be to for seems it side. you could on

Bart Olson

use were about deposits Yes, Bart. actually during quarter, did saw we wholesale to the billion. we deposits wholesale fund growth, Jared, some Yes, this $X.X is loan the of some

further we of deposit into second look the ahead. growth the with wholesale expect As quarter have looking during in but loan slower deposits increases we'll half the year, anticipate talked that some outlook, I about we the the we

Jared Shaw

into the Fed to changes, accelerating look what's assume deposit of the And year should an the at in we beta when Okay. expect for we funds the if beta as go expectation then see XXX of these some we we here? end base,

Bart Olson

Yes.

looking year, probably XX%. increase two beta deposits of first think quarter total on look if to a year out to second forward, that we'd was The you I move the roughly horizon. expect probably over within And towards then XX% XX%, north

Matt Wagner

that absolute keep interest there. of costs Yes, are Jared just mind in the level

to And on not your we're overall grow looking income. as deposits just naturally, it, overall interest if right. So, a is low the impactful. looking at the but still net of foundation is X of deposits the we're cost low, X, beta beta business, a very of is the It's thing. of as cost And

Jared Shaw

great. Yes,

new you're now sit the in I'll paying CDs? that and you. thank Okay, what's back. brokered on actually, And rate right

Bart Olson

brokered from obviously the XX it's more during ranges points recently. to And up basis the Yes, XXX. slightly, from anything about ranks quarter

Operator

from now our take we And will next Stephens. with Terrell Andrew question

Andrew Terrell

on see or kind I'm in level versus and improvement as sticking fundraising saw moderated have heading could you in any deposit core don't capital do a think kind you quarter, just of here? if we second the quarter outlook. third growth into similar Maybe core private we declines of of the XQ kind see should deposit of curious markets

Matt Wagner

want it you take Bill? Do to

Bill Black

No.

Matt Wagner

we're moderating think it to see No, But starting I predict, hard to pretty Andrew. it's already.

Bart Olson

you don't that? I add to if Yes want to Mark, know

Mark Yung

here seen we the capital I it out seen in the summer Yes, the through data get continuing I community, QX reduction that we've is months think mean, part coming all QX. at what I well, we've the activity. mean we a fundraising here are low, this versus even in and of again, QX of venture as point

for is of companies in sizes are activity we level some that terms in some probably should larger hand. that, but had of transaction continue that cash seeing that So plenty our still on round portfolio encouraging, deal

that's But Bart $XXX point, to as bit we closely products little liquidity our on companies opportunities out, that very sure something million monies Obviously, in with make obviously all it to balance we're working to our those example of saw see portfolio do I that spelled movement I an sheet. the mean that's quarter. sign. around yields, obviously sensitivity, opposed a encouraging more there's towards to Matt's larger think and I think PWAM QX, So a they keep

Andrew Terrell

thank Okay, all? seen, quality kind underwriting guess, move gives changed has you. deal; just were you if the given what I business? first we've comfortable estate And level at confidence about how you kind when I the over, you know And talked can market a comfort closed credit in Civic I real what the of the we in of with the there.

Matt Wagner

got out, a record been that originated outs we've And Well, And of ins good XXXX. track buying prove we've we've had inception, and a alone that we've I underwriting. since loans feel performance to the of levels that just real the we've issues. assets able significant of and been any from We amount of de-minimis Andrew mean, in had. since

about that. good really feel we So

Bart Olson

We've charge-offs see loans, here changing. record that be say. those there's see don't at Andrew, always you'll you implications two-and-a-half But years, lots aggressive very air track there Even I issue literally over I doesn't that. the to charge-offs two-and-a-half past mean it that balls. as might you of And our business, charge-off venture Yes, company look the zero downgrading underwriting and sort loans last for that The in know, years, if strong. there. net portfolio necessarily we've be the been which should is of or think where I could an had

Operator

We'll Truist our now King from question next Securities. with Brandon take

Matt Wagner

Brandon. Hey,

Brandon King

Hi, good morning.

broker growth loan expectations where surprising far half is growth see the back kind a I know others, it's in of loan want Just Civic back smaller present what in know wanted what year, there you of than running for takes loan year. just to I to are your production year? on seeing the been more guidance, touch half the after the levels, as back categories slowing you of and the figures are as

Bart Olson

going think to Yes, Brandon, higher I see rates, uncertainty. slowing more overall, you're economic

sheet. and to really I slowdown think will at the real But a you're to going try monitor optimize see obviously, continue balance to we high-level. a natural

think the selective I you And we you'll together, from I to think here, I that slowdowns we at in that look it see going slowdown quarter. you're be and second So more think see putting when from will pace, in clearly saw the general.

by limit you're what a balance looking but business? what you be, sheet, if imagine Now, would I not prescribed does could that that mean mean, to would out you think business probably the figure that, is. optimize I there's where it

Matt Wagner

overruns seen the projects, in construction customers also that out your then I last have chain our That X.X% issues maybe it and from going item been months too or or didn't Rarely and one how rates, another. be project completed mean, and you XX that might we're supply cost don't penciled cost out rates materials. have in hearing at interest pencil Projects we to just relates Brandon. line really some a that's of to. a date, whatever, anticipating in terms that

Brandon King

then, was color Okay. of taking And if what on I could there up you even wondering source loan. touch the I Got there to notes? provide if wanted that is classified it. some was

Matt Wagner

Yes, no problem.

did was few a see credits, up where tick type you metrics, the of yes, some had credit in administrative a issues. it some we So

indication And of we the than things you think else. secured. coming culture very credit We're months. I or or really credits we where them. about tell here, think, that more be more months anything are feel I the are would conservative or remediated downgrades good our rating in I resolved expect to these month risk months, an either of those well

As in to of form a aggressive is, of good of about downgrading lead XXXX, that were really certainly deterioration. saw feel where things, losses, didn't now. -- We sign and in certainly you credit we not but a right any credit

Brandon King

Okay.

deteriorating one-off So and of it's that's result very the sort time interesting of all a issues just macroenvironment?

Matt Wagner

could you Civic, those Yes. one -- the a as last from of to little properties near make make payments, you're opt And imagine, under can contract because get payments, going to become of Yes. customers extra whatever, his as loans couple not charge activity or completion the to whatever. those. We've handful or get don't a mention And do yet. we Again, We're resolved. they're up burning granular, I seen for we on get now. put going sure. think of you haven't they to special off can that loan had

Brandon King

questions. Thanks. And that's my

Operator

with Piper our question from take next Matthew now We'll Clark Sandler.

Matthew Clark

guys. morning good Hey,

Matt Wagner

Hi, Matthew.

Matthew Clark

give increase be what on in Understand the for one but quarter, half? First where sense a better just run outlook. think me, us the expense comp in this contributed to of you the can the you will rate second

Bart Olson

is Bart. Yes, this sure, Matthew,

that XXXs, I think to in it's good be lower XXXs. upper

the expect you I XXX. expenses thus starting expected was to we QX year, go the I'd ones, opening about that. and growth to down. think that the the of if some about of affect QX, second And and growth half during and its loan loan like the will again, to kind pace working mentioned a little been comments. in in up with what recede the of my But those I of year which in talked it's way low far, normalize,

the so I'd And XXXish something say area. around

Matthew Clark

potential there terms Okay. risk the And overall on there? just then transfer, just update timing, credit in any plans of

Bart Olson

working Yes. be plans something the third that We're still it'd through quarter. in are

And so at anticipate that's what point. I would this

Matthew Clark

a still on in last kind time for your the some take thoughts change managed? And on, formally maybe the, one now. terms when might I it'd how be the think the Thanks. know for get of but Okay. little way me, Paul, been to you've board initial you what on it's banks great for over you then just that of early,

Paul Taylor

time. many easy period known years, John known for to bank. run. for well I've great a over, Matt I've same an and is this this was the is of almost mean, because bank the I respects, Good Yes. in And XX morning. very take job

I pushes number of various the platform some is technology more where it's company. then one holes better that it's [Technical improving the project. same big And get a working -- think huge and a acquisitions. of the and that to PacWest technology, technology pretty just much for products been hard It's in the doing Yes, and of through Difficulty]. there's today. a pieces has we're in

Operator

question [Operator D.A. from with Gary Instructions]. We'll Davidson. now take Tenner a

Gary Tenner

Thanks morning. guys. Good

Matt Wagner

Good morning.

Gary Tenner

still Just back sheet would the of about, the during balances year. some optimizing thinking you just the securities think deposit run continue offset on may maybe of headwinds outlook the kind year. growth to half commentary of back that the lighter what balance down about of To cash half some portfolio for or the to gathered possible thinking the hey, of and loan the you do degree,

like, like is You have have to levels you'd look that question? optimal guess, the mix the I

Bart Olson

think a X% I the assets. ended around of earning down earning Gary, the portfolio can around further. investment we XX% running cash quarter bit see investments little of Yes, with I assets,

So that see around staying I would cash X%, X%.

little see. could a so bit And portfolio, you on the investment

Gary Tenner

Okay.

of So been net the back as balance the potentially growth than amount year, the lower we balance overall, something it's think on is sheet sheet. longer about of the half

Bart Olson

that's Yes, I fair. think

Operator

move We'll Scott. now to Janney next is Christopher Montgomery caller, Marinac who with our

Christopher Marinac

and Hey, such cetera. pace in for some hosting loan Is and quarters? thanks, et couple the on good call do the and that equity pace of the may fund of everyone. kind different the of finance of to into next loans, growth Thanks I morning. indicative lender the you their want as lines, other of think the dig macroenvironment be

Matt Wagner

want do take to Mark, that? you

Mark Yung

the lender can equity. I I Yes, finance of mean pace speak to and that.

construction. portfolio right. But one-off more given finance, can honestly growth just mean, happen that I was there limited transactions on quarter. that fund of really individual is our with funding of end start indicative let's So in the

$XXX the of fundraising market year. As venture first you the raised in alone the robust, half in activity very see, has about billion been

watching is a clip. Fundraising a for closely. at to And to managers. so emerging we're fund continues starting especially Obviously, formation very little harder, healthy relatively be become

So from amount here half that's the in the to of dry to there's that. given cut up something cloth And I'll of second I that powder that there benefit finances a the say transactional number would sense $XXX powder, kind that lot same the hasn't tremendous subject the private from dry number of provide in fund private still of, a in and out in we one. we're to looking little equity and watching enhance provide levels But lender deploy And billion finance carefully. would their pick expect that that fund its we lending obviously And do in market. for activities. these U.S. landscape they're the all a returns, intermittent alone, kind capital. been opportunities warehousing I two, securitization That of to are facilities say, in credit year,

obviously, are finance the that closely as that some There for could happen of watching growth we're so And as that could year. impact very remainder quickly well. the lender securitizations

Christopher Marinac

we're So cycle? in with businesses just you do part these higher interest better, this spread because become of better rates for the

Mark Yung

vis-à-vis absolutely. can better yield that Yes, so and spreads. a competitors. within But seeing commoditized. certain there, to is finance we're we our more focus specially relatively side. business finance, opportunities enhance We a our spreads new I capture some originations. play enhance finance It in mean, our here yields VC opportunities our say we're in better in yes, lender to I'd niche, seeing fund was here lender make the

Christopher Marinac

technology there run expense then Mark, most numbers? Or much How And of just other today's guess out I the already build. built in is for for one expense rate? on Great. extra the technology that question you, is

Mark Yung

to And it's as There's days, mean obviously I expenses, some says love the for right. you we indicated, on overnight. can't No. as best it Today, I spend Chris, -- technology. more much more as spend early Matt

technology additional don't in So market our in there's I headcount and around some here terms we're to we're of Bart, incremental traction good rate. of still of but what obviously, terms know, to investments made. milestones in run indicating getting vis-à-vis here be some the growth

Bart Olson

is obviously I earlier. technology of mean, quarter. the is in a numbers just growth And related about the Obviously, hired we change again, think I that of We during highlighted real I I at some to Well, the mean, XX of digital strategy, it's, the of it's FTEs -- yes, the that that. and pace talked

Mark Yung

XX about if think remember. I I

Bart Olson

around Yes XX so.

Mark Yung

they're either. And cheap, necessarily, not

Bart Olson

Correct.

the that's it it's hire but into built challenging for than plan plan. So kind market those knows not But certainly to is the the XX of it's everybody people. Obviously, certain conditions. now, easy has Right more skillsets.

on that work to continue initiative. we'll so And

Mark Yung

Chris, some going expenses as building of software life right? to here. be subject those with to Because capitalization well, we're longer And are shelf

So there's dynamic well. that as

Christopher Marinac

the Does XX it those roles? additional Sure. in the stack and tech all Bart, make beyond mainly are production And sense? hires

Bart Olson

Yes.

Mark Yung

yes. Yes, community and banks. Within Civic

Christopher Marinac

for Thanks information the this morning. all Great.

Matt Wagner

Chris. Thanks,

Operator

[Operator Instructions].

question Chris KBW. with next Our McGratty from come will

Chris McGratty

Bart, question guys you. you a know Maybe like margin. don't talk for about I to

mentioned just was Given sheet them in size. But this balance this prepared remarks, and you your I $XX then quarter. optics million of up

what and of year? feds you're think the in quarter quarter-on-quarter what accelerating the about second from back given growth Should Just the sheet, doing also with we levels half balance the that the doing?

Bart Olson

so. big I timing I in last Yes, think about the And of the if mean, hikes, you rate different mid-June. hike the think was

see more So said you're going income and to interest all half we've the real year benefits from if of the hikes in the into in net what XXXX. second and the really of growth along,

Chris McGratty

you Have to on it? moved

Bart Olson

as $X.X quarter, floors. every of billion the that's with the or And majority next well. about of first We take the remaining the quarter. the their loans two the of moves dropped move Adding certainly billion loans during name on end will to the floor floors; we $X at got off had rate the

of would expect their quarter. third the loans very, The of that I is end small. the amount very on by So quarter

to growing that accelerate. continue Net like that over that nicely last So is the I grow to income And quarters. several to would we it interest expect has. expect

Chris McGratty

Great.

growth. slowing -- comment On the the question on about

huge profile is given couple rebuild of made about you Do it guess. the effort years competitive and talent how now? have worry guys right last growth messaging loss I a You to the

Matt Wagner

you think say don't I I loss? mean, -- No, did we so. talent

Chris McGratty

Yes.

Matt Wagner

got such their year, much seem first I people bonuses in I they've don't and which the half they pretty really about a done of they've happy. the think people is made that around I'm pretty good, get have, job crisp them. to to that great stick mean, concerned

you're we'll that be see this good had And you're Again, going to definitely raise construction and be become going extraordinary high have you're the see I growth. great growth really these bank, also to I solid, that the construction. to just, I I it's world to think growth, into the as as companies I XXXX our think XXXX, to in, XXXX projects business, a so just, deposit know, XXXX. I We there. bank a still digit for that you're of still we and work come in great lending these feasible. multifamily, of the able the it's think There's to a to the venture think housing you there's think, single driven but is numbers need had by community back, a change. and money, to it's don't going need, it back changing. most tougher see businesses in I going we'll projects saw at certain going less kick pullback see level be nature come mean, or the But out finance won't well.

talking to much down And to and and be of volumes next what our predicting biggest half maybe going they with as They're some even are week. of meeting XXXX. So in XXXX. of did as in XX%, another clients, I Paul I some

when Civic. great think of had grow, of grow. a we've luck And businesses to with that's it. And and part I big lender of continues course, to that's finance But do. our continue what other guys So sector at we

Chris McGratty

just that Okay, thanks Matt. And for color, last.

rate? last on Just tax one rate is XX% the about the

Bart Olson

Yes, we've I I range to a mean, about think, talked XX%. XX%

still that range. would I in say so And

Operator

Piper Clark take Sandler. Matthew now question from We'll Instructions]. [Operator a with

Matthew Clark

the wanted at deposits to had the spot just if interest Hey, end ask of on bearing June? rate you

Matt Wagner

Yes, spot basis deposits XX of June end was rate points.

Matthew Clark

XX, okay. Thank you.

Operator

appears to like it any question. conference there turn or the I'd are presenters over our to back additional no closing for And telephone further remarks.

Matt Wagner

your We soon. and time everybody. and to you, Thanks, [indiscernible]. effort Paul we for appreciate Thank you talk will Okay.

Operator

you participation. that conclude conference. thank all again your once We for today's does And

disconnect. now may You

Pacwest Bancorp (PACW) 21 Jul 222022 Q2 Earnings call transcript