PACW PacWest Bancorp

Fourth Quarter 2018 Highlights

PacWest Bancorp (Nasdaq: PACW) today announced net earnings for the fourth quarter of 2018 of $115.0 million, or $0.93 per diluted share, compared to net earnings for the third quarter of 2018 of $116.3 million, or $0.94 per diluted share.  Net earnings for the full year 2018 were $465.3 million, or $3.72 per diluted share, compared to net earnings for the full year 2017 of $357.8 million, or $2.91 per diluted share.

Matt Wagner, President and CEO, commented, “We finished the year with strong growth in both loans and deposits and continued improvement in our credit quality metrics. Our fourth quarter results produced a return on assets of 1.84% and a return on tangible equity of 21.23%.”

Mr. Wagner continued, “Our net earnings for the full year 2018 increased 30% over the prior year to $465.3 million. The increase was driven largely by the benefits of tax reform and lower credit costs, while revenue growth significantly outpaced noninterest expense growth.  Our tax equivalent net interest margin remained above 5% for the full year 2018 and continued cost controls resulted in our efficiency ratio being unchanged from the prior year at 41%.”

Mr. Wagner continued, “We are pleased with the fourth quarter’s organic loan and core deposit growth and will work to carry that momentum into 2019. We will also retire the division names and branding of CapitalSource and Square 1 Bank and replace them with the National Lending and Venture Banking groups under one brand as Pacific Western Bank.” 

FINANCIAL HIGHLIGHTS

	At or For the												At or For the
	Three Months Ended												Year Ended
	December 31,				September 30,				Increase				December 31,								Increase
Financial Highlights	2018				2018				(Decrease)				2018				2017				(Decrease)
	(Dollars in thousands, except per share data)
Net earnings	$	115,041			$	116,287			$	(1,246	)		$	465,339			$	357,818			$	107,521
Diluted earnings per share	$	0.93			$	0.94			$	(0.01	)		$	3.72			$	2.91			$	0.81
Return on average assets	1.84		%		1.89		%		(0.05		)		1.91		%		1.58		%		0.33
Return on average
tangible equity (1)	21.23		%		21.61		%		(0.38		)		21.22		%		15.15		%		6.07
Net interest margin ("NIM")
(tax equivalent)	4.91		%		4.99		%		(0.08		)		5.05		%		5.10		%		(0.05		)
Yield on average loans and
leases (tax equivalent)	6.27		%		6.20		%		0.07				6.22		%		5.97		%		0.25
Cost of average total deposits	0.62		%		0.46		%		0.16				0.44		%		0.27		%		0.17
Efficiency ratio	41.7		%		40.9		%		0.8				41.0		%		40.8		%		0.2
Total assets	$	25,731,354			$	24,782,126			$	949,228			$	25,731,354			$	24,994,876			$	736,478
Loans and leases held
for investment,
net of deferred fees	$	17,957,713			$	17,230,146			$	727,567			$	17,957,713			$	16,972,743			$	984,970
Noninterest-bearing deposits	$	7,888,915			$	7,834,480			$	54,435			$	7,888,915			$	8,508,044			$	(619,129	)
Core deposits	$	16,346,671			$	15,512,742			$	833,929			$	16,346,671			$	15,937,012			$	409,659
Total deposits	$	18,870,501			$	17,879,543			$	990,958			$	18,870,501			$	18,865,536			$	4,965
Noninterest-bearing
deposits as percentage
of total deposits	42		%		44		%		(2		)		42		%		45		%		(3		)
Core deposits as
percentage of total
deposits	87		%		87		%		(0		)		87		%		85		%		2
Equity to assets ratio	18.75		%		19.13		%		(0.38		)		18.75		%		19.91		%		(1.16		)
Tangible common equity
ratio (1)	9.60		%		9.61		%		(0.01		)		9.60		%		10.50		%		(0.90		)
Book value per share	$	39.17			$	38.46			$	0.71			$	39.17			$	38.65			$	0.52
Tangible book value per
share (1)	$	18.02			$	17.28			$	0.74			$	18.02			$	18.24			$	(0.22	)
(1) Non-GAAP measure.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased by $1.4 million to $261.8 million for the fourth quarter of 2018 compared to $260.3 million for the third quarter of 2018 due to a higher yield on average loans and leases and a higher balance of average loans and leases, offset partially by higher deposit costs.  The tax equivalent yield on average loans and leases was 6.27% for the fourth quarter of 2018 compared to 6.20% for the third quarter of 2018. The increase in the yield on average loans and leases was due principally to higher coupon interest.    

The tax equivalent NIM was 4.91% in the fourth quarter of 2018 compared to 4.99% for the third quarter of 2018. The decrease in the NIM was due mainly to higher deposit and borrowing costs, partially offset by a higher yield on average loans and leases and a higher yield on investment securities.          

The cost of average total deposits increased to 0.62% for the fourth quarter of 2018 from 0.46% for the third quarter of 2018 due to higher rates paid on deposits in conjunction with increased market interest rates.  

Provision for Credit Losses

The provision for credit losses increased by $0.5 million to $12.0 million for the fourth quarter of 2018 compared to $11.5 million for the third quarter of 2018.    

The following table presents details of the provision for credit losses for the periods indicated:  

	Three Months Ended										Year Ended
	December 31,			September 30,			Increase				December 31,
Provision for Credit Losses	2018			2018			(Decrease)				2018
	(In thousands)
Addition to allowance for loan
and lease losses	$	10,500		$	11,500		$	(1,000	)		$	36,774
Addition to reserve for unfunded
loan commitments	1,500			-			1,500				8,226
Total provision for credit losses	$	12,000		$	11,500		$	500			$	45,000

Noninterest Income

Noninterest income decreased by $3.4 million to $33.5 million for the fourth quarter of 2018 compared to $36.9 million for the third quarter of 2018 due mainly to a $4.2 million decrease in dividends and gains on equity investments, a $1.6 million decrease in warrant income, and a $1.3 million decrease in other commissions and fees, offset partially by a $3.4 million increase in other income.  Dividends and gains on equity investments decreased mainly due to lower realized gains on investments sold and decreased fair values of investments still held. Warrant income decreased due to lower realized gains on exercised warrants as the third quarter included a $3.1 million gain on a warrant in a company that completed an IPO. Other commissions and fees decreased mostly due to lower prepayment and other loan-related fees.  Other income increased primarily due to higher miscellaneous income from borrower settlements and higher BOLI income from a death benefit received.

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

	Three Months Ended
	December 31,				September 30,			Increase
Noninterest Income	2018				2018			(Decrease)
	(In thousands)
Service charges on deposit accounts	$	4,091			$	3,979		$	112
Other commissions and fees	11,114				12,397			(1,283		)
Leased equipment income	9,384				9,120			264
Gain on sale of loans and leases	-				-			-
Gain on sale of securities	786				826			(40		)
Other income:
Dividends and (losses) gains on equity investments	(1,331		)		2,895			(4,226		)
Warrant income	2,187				3,818			(1,631		)
Other	7,295				3,877			3,418
Total noninterest income	$	33,526			$	36,912		$	(3,386	)

Noninterest Expense

Noninterest expense increased by $1.1 million to $129.2 million for the fourth quarter of 2018 compared to $128.1 million for the third quarter of 2018 attributable primarily to a $3.7 million increase in other expense, offset partially by a $3.0 million decrease in compensation expense. Other expense increased due to the $2.1 million write-off of the Square 1 trademark asset as a result of our plan to retire the Square 1 Bank name and increased employee expense due to executive relocation costs.  Compensation expense decreased due mostly to lower stock compensation expense, lower bonus expense, and lower commissions expense as a result of the decreased warrant income.

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

	Three Months Ended
	December 31,				September 30,				Increase
Noninterest Expense	2018				2018				(Decrease)
	(In thousands)
Compensation	$	69,299			$	72,333			$	(3,034	)
Occupancy	13,356				13,069				287
Data processing	6,930				6,740				190
Other professional services	6,198				6,058				140
Insurance and assessments	4,202				5,446				(1,244		)
Intangible asset amortization	4,986				5,587				(601		)
Leased equipment depreciation	5,758				5,001				757
Foreclosed assets income, net	(311		)		(257		)		(54		)
Acquisition, integration and reorganization costs	970				800				170
Loan expense	2,991				2,249				742
Other	14,856				11,127				3,729
Total noninterest expense	$	129,235			$	128,153			$	1,082

Income Taxes

The overall effective income tax rate was 25.3% for the fourth quarter of 2018 and 26.2% for the third quarter of 2018.  The decrease in the fourth quarter effective tax rate was due primarily to a change in the state apportionment method applied by the state of Maryland.  The effective tax rate for the year ended December 31, 2018 was 26.5% while the full year 2019 is estimated to be in the range of 27-28%.   

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Loans and leases held for investment, net of deferred fees, increased by $727.6 million in the fourth quarter of 2018 to $18.0 billion at December 31, 2018.  The net increase was driven mainly by production of $1.6 billion and disbursements of $1.2 billion, offset partially by payoffs of $1.1 billion and paydowns of $920.6 million.  For the year ended December 31, 2018 loans and leases held for investment, net of deferred fees, increased by $985.0 million or 5.8%.

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								Year Ended
Loans and Leases	December 31,				September 30,				December 31,
Held for Investment Roll Forward (1)	2018				2018				2018
	(Dollars in thousands)
Balance, beginning of period	$	17,230,146			$	16,885,192			$	16,972,743
Additions:
Production	1,571,565				1,315,572				4,888,614
Disbursements	1,186,351				966,668				4,104,335
Total production and disbursements	2,757,916				2,282,240				8,992,949
Reductions:
Payoffs	(1,070,691		)		(1,133,233		)		(4,289,297		)
Paydowns	(920,633		)		(795,243		)		(3,480,997		)
Total payoffs and paydowns	(1,991,324		)		(1,928,476		)		(7,770,294		)
Sales	-				(3,326		)		(161,729		)
Transfers to foreclosed assets	(13,679		)		(2,176		)		(16,914		)
Charge-offs	(25,346		)		(3,308		)		(59,042		)
Total reductions	(2,030,349		)		(1,937,286		)		(8,007,979		)
Balance, end of period	$	17,957,713			$	17,230,146			$	17,957,713
Weighted average rate on production (2)	5.38		%		5.17		%		5.23		%
(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:

	December 31,			September 30,			June 30,			December 31,
Loan and Lease Portfolio	2018			2018			2018			2017
	(In thousands)
Real estate mortgage:
Commercial	$	4,824,298		$	4,932,823		$	5,010,680		$	5,385,740
Residential	3,093,843			2,745,837			2,555,695			2,466,894
Total real estate mortgage	7,918,141			7,678,660			7,566,375			7,852,634
Real estate construction and land:
Commercial	912,583			854,346			831,462			769,075
Residential	1,321,073			1,146,611			1,042,564			822,154
Total real estate construction and land	2,233,656			2,000,957			1,874,026			1,591,229
Total real estate	10,151,797			9,679,617			9,440,401			9,443,863
Commercial:
Asset-based	3,305,421			3,222,311			3,184,300			2,924,950
Venture capital	2,038,748			2,031,895			2,008,205			2,122,735
Other commercial	2,060,426			1,897,852			1,873,607			2,071,394
Total commercial	7,404,595			7,152,058			7,066,112			7,119,079
Consumer	401,321			398,471			378,679			409,801
Total loans and leases held for
investment, net of deferred fees	$	17,957,713		$	17,230,146		$	16,885,192		$	16,972,743
Total unfunded loan commitments	$	7,528,248		$	7,055,833		$	6,429,587		$	6,234,061

Allowance for Credit Losses

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

	Three Months Ended December 31, 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	$	141,920			$	35,361		$	177,281
Charge-offs	(25,346		)		-			(25,346		)
Recoveries	5,398				-			5,398
Net charge-offs	(19,948		)		-			(19,948		)
Provision	10,500				1,500			12,000
Ending balance	$	132,472			$	36,861		$	169,333

	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

The allowance for credit losses as a percentage of loans and leases held for investment decreased to 0.94% at December 31, 2018 from 1.03% at September 30, 2018 as certain specific reserves in place at September 30, 2018 were charged off during the fourth quarter, lowering the specific reserves on impaired loans at December 31, 2018 compared to September 30, 2018.

Gross charge-offs for the fourth quarter of 2018 were $25.3 million and included $23.4 million for venture capital loans, of which $20.0 million related to two loans, and $1.7 million for other commercial 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. Recoveries for the fourth quarter of 2018 were $5.4 million and included $3.1 million for venture capital loans and $1.7 million for other commercial loans. Recoveries for the third quarter of 2018 were $1.6 million and included $1.0 million for venture capital loans.  

For the full year 2018, net charge-offs were $43.8 million and included $24.2 million for venture capital loans, a decrease from the full year 2017 net charge-offs of $68.7 million that included $36.0 million for venture capital loans.  This resulted in a decrease in net charge-offs to average loans for the venture capital portfolio from 1.77% in 2017 to 1.17% in 2018.

For the fourth quarter of 2018 and third quarter of 2018, annualized net charge-offs to average loans and leases were 0.46% and 0.04%.  For the full years 2018 and 2017, net charge-offs to average loans and leases were 0.26% and 0.43%.

Deposits and Client Investment Funds

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

	December 31,				September 30,				June 30,				December 31,
Deposit Category	2018				2018				2018				2017
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	7,888,915			$	7,834,480			$	8,126,153			$	8,508,044
Interest checking deposits	2,842,463				2,277,537				2,184,785				2,226,885
Money market deposits	5,043,871				4,782,724				4,631,658				4,511,730
Savings deposits	571,422				618,001				643,642				690,353
Total core deposits	16,346,671				15,512,742				15,586,238				15,937,012
Non-core non-maturity deposits	518,192				483,528				607,388				863,202
Total non-maturity deposits	16,864,863				15,996,270				16,193,626				16,800,214
Time deposits $250,000 and under	1,593,453				1,509,214				1,394,117				1,709,980
Time deposits over $250,000	412,185				374,059				341,449				355,342
Total time deposits	2,005,638				1,883,273				1,735,566				2,065,322
Total deposits	$	18,870,501			$	17,879,543			$	17,929,192			$	18,865,536
Noninterest-bearing demand deposits
as percentage of total deposits	42		%		44		%		45		%		45		%
Core deposits as percentage of total deposits	87		%		87		%		87		%		85		%

At December 31, 2018, core deposits totaled $16.3 billion, or 87% of total deposits, including $7.9 billion of noninterest-bearing demand deposits, or 42% 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 December 31, 2018 were $1.9 billion, of which $1.5 billion was managed by S1AM.

CREDIT QUALITY  

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

	December 31,				September 30,				Increase
Credit Quality Metrics	2018				2018				(Decrease)
	(Dollars in thousands)
Nonaccrual loans and leases held for investment (1)	$	79,333			$	112,972			$	(33,639	)
Accruing loans contractually past due 90 days or more	-				-				-
Foreclosed assets, net	5,299				4,407				892
Total nonperforming assets	$	84,632			$	117,379			$	(32,747	)
Nonaccrual loans and leases held for investment (1)	$	79,333			$	112,972			$	(33,639	)
Performing troubled debt restructured loans
held for investment	17,701				22,106				(4,405		)
Total impaired loans and leases	$	97,034			$	135,078			$	(38,044	)
Nonaccrual loans and leases held for investment
to loans and leases held for investment	0.44		%		0.66		%
Nonperforming assets to loans and leases
held for investment and foreclosed assets	0.47		%		0.68		%
Pass	$	17,459,205			$	16,609,629			$	849,576
Special mention	261,398				360,058				(98,660		)
Classified	237,110				260,459				(23,349		)
Total loans and leases held for investment,
net of deferred fees	$	17,957,713			$	17,230,146			$	727,567
Classified loans and leases held for investment
to loans and leases held for investment	1.32		%		1.51		%
Allowance for credit losses	$	169,333			$	177,281			$	(7,948	)
Provision for credit losses (for the quarter)	$	12,000			$	11,500			$	500
Net charge-offs (for the quarter)	$	19,948			$	1,719			$	18,229
Net charge-offs to average loans and leases
(for the quarter)	0.46		%		0.04		%
Allowance for credit losses to loans and leases
held for investment	0.94		%		1.03		%
Allowance for credit losses to nonaccrual loans
and leases held for investment	213.5		%		156.9		%
(1) Nonaccrual loans include guaranteed amounts of $11.2 million at December 31, 2018 and $13.5 million
at September 30, 2018.

During the fourth quarter of 2018, nonaccrual loans decreased by $33.6 million and classified loans decreased by $23.3 million.  These decreases were primarily due to the foreclosure and sale during the quarter of a $12.2 million commercial real estate loan (which was our only exposure to traditional malls) and the charge-off of two venture capital loans carried at $22.5 million that were classified and on nonaccrual status at September 30, 2018.

Special mention loans and leases decreased by $98.7 million in the fourth quarter due primarily to the payoff of two loans totaling $50 million and a $36 million loan being upgraded to pass status.  

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
	December 31, 2018					September 30, 2018					30-89 Days Past Due
			% of					% of			December 31,			September 30,
			Loan					Loan			2018			2018
	Amount		Category			Amount		Category			Amount			Amount
	(Dollars in thousands)
Real estate mortgage:
Commercial	$	15,321	0.3	%		$	29,723	0.6	%		$	3,276		$	824
Residential	2,524		0.1	%		3,259		0.1	%		1,557			5,436
Total real estate mortgage	17,845		0.2	%		32,982		0.4	%		4,833			6,260
Real estate construction and land:
Commercial	442		0.0	%		-		0.0	%		-			-
Residential	-		0.0	%		-		0.0	%		1,527			8,498
Total real estate
construction and land	442		0.0	%		-		0.0	%		1,527			8,498
Commercial:
Asset-based	32,324		1.0	%		34,619		1.1	%		47			-
Venture capital	20,299		1.0	%		35,520		1.7	%		1,028			1,028
Other commercial	7,380		0.4	%		9,579		0.5	%		2,467			222
Total commercial	60,003		0.8	%		79,718		1.1	%		3,542			1,250
Consumer	1,043		0.3	%		272		0.1	%		581			605
Total held for investment	$	79,333	0.4	%		$	112,972	0.7	%		$	10,483		$	16,613

STOCK REPURCHASE PROGRAM

During the fourth quarter of 2018, no shares were repurchased.  For the year ended December 31, 2018, we repurchased 5,849,234 shares at an average price of $52.38 and a total cost of $306.4 million.  At December 31, 2018, the remaining amount that could be used to repurchase shares under the $350 million Stock Repurchase Program was $110.1 million.

ABOUT PACWEST BANCORP

PacWest Bancorp (“PacWest”) is a bank holding company with over $25 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 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 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 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.

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
	December 31,				September 30,				December 31,
	2018				2018				2017
	(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks	$	175,830			$	196,502			$	233,215
Interest-earning deposits in financial institutions	209,937				185,284				165,222
Total cash and cash equivalents	385,767				381,786				398,437
Securities available-for-sale, at estimated fair value	4,009,431				3,820,333				3,774,431
Federal Home Loan Bank stock, at cost	32,103				31,077				20,790
Total investment securities	4,041,534				3,851,410				3,795,221
Loans held for sale	-				-				481,100
Gross loans and leases held for investment	18,026,365				17,295,589				17,032,221
Deferred fees, net	(68,652		)		(65,443		)		(59,478		)
Total loans and leases held for investment,
net of deferred fees	17,957,713				17,230,146				16,972,743
Allowance for loan and lease losses	(132,472		)		(141,920		)		(139,456		)
Total loans and leases held for investment, net	17,825,241				17,088,226				16,833,287
Equipment leased to others under operating leases	292,677				275,707				284,631
Premises and equipment, net	34,661				34,012				31,852
Foreclosed assets, net	5,299				4,407				1,329
Deferred tax asset, net	17,489				41,280				-
Goodwill	2,548,670				2,548,670				2,548,670
Core deposit and customer relationship intangibles, net	57,120				62,106				79,626
Other assets	522,896				494,522				540,723
Total assets	$	25,731,354			$	24,782,126			$	24,994,876
LIABILITIES:
Noninterest-bearing deposits	$	7,888,915			$	7,834,480			$	8,508,044
Interest-bearing deposits	10,981,586				10,045,063				10,357,492
Total deposits	18,870,501				17,879,543				18,865,536
Borrowings	1,371,114				1,513,166				467,342
Subordinated debentures	453,846				452,944				462,437
Accrued interest payable and other liabilities	210,305				194,788				221,963
Total liabilities	20,905,766				20,040,441				20,017,278
STOCKHOLDERS' EQUITY (1)	4,825,588				4,741,685				4,977,598
Total liabilities and stockholders’ equity	$	25,731,354			$	24,782,126			$	24,994,876
Book value per share	$	39.17			$	38.46			$	38.65
Tangible book value per share (2)	$	18.02			$	17.28			$	18.24
Shares outstanding	123,189,833				123,283,450				128,782,878
(1) Includes net unrealized (loss) gain on securities
available-for-sale, net	$	(6,075	)		$	(43,854	)		$	31,171
(2) Non-GAAP measure.

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
	Three Months Ended												Year Ended
	December 31,				September 30,				December 31,				December 31,
	2018				2018				2017				2018				2017
	(Dollars in thousands, except per share data)
Interest income:
Loans and leases	$	272,522			$	264,062			$	258,309			$	1,047,969			$	952,771
Investment securities	29,690				28,061				25,712				111,619				98,202
Deposits in financial institutions	527				519				576				2,082				1,543
Total interest income	302,739				292,642				284,597				1,161,670				1,052,516
Interest expense:
Deposits	28,834				21,121				14,041				80,140				45,694
Borrowings	4,602				3,814				1,366				11,985				3,638
Subordinated debentures	7,538				7,390				6,234				28,631				23,613
Total interest expense	40,974				32,325				21,641				120,756				72,945
Net interest income	261,765				260,317				262,956				1,040,914				979,571
Provision for credit losses	12,000				11,500				6,406				45,000				57,752
Net interest income after
provision for credit losses	249,765				248,817				256,550				995,914				921,819
Noninterest income:
Service charges on deposit accounts	4,091				3,979				4,574				16,509				15,307
Other commissions and fees	11,114				12,397				10,505				45,543				41,422
Leased equipment income	9,384				9,120				8,258				37,881				37,700
Gain on sale of loans and leases	-				-				1,988				4,675				6,197
Gain (loss) on sale of securities	786				826				(3,329		)		8,176				(541		)
Other income	8,151				10,590				4,799				35,851				28,488
Total noninterest income	33,526				36,912				26,795				148,635				128,573
Noninterest expense:
Compensation	69,299				72,333				71,986				282,568				266,567
Occupancy	13,356				13,069				12,715				53,223				48,863
Data processing	6,930				6,740				6,764				27,225				26,575
Other professional services	6,198				6,058				5,786				21,952				17,353
Insurance and assessments	4,202				5,446				5,384				20,705				19,733
Intangible asset amortization	4,986				5,587				5,062				22,506				14,240
Leased equipment depreciation	5,758				5,001				5,048				21,371				20,767
Foreclosed assets (income) expense, net	(311		)		(257		)		(475		)		(751		)		1,702
Acquisition, integration and
reorganization costs	970				800				16,085				1,770				19,735
Loan expense	2,991				2,249				3,140				10,569				13,832
Other expense	14,856				11,127				11,373				50,094				46,294
Total noninterest expense	129,235				128,153				142,868				511,232				495,661
Earnings before income taxes	154,056				157,576				140,477				633,317				554,731
Income tax expense	(39,015		)		(41,289		)		(56,440		)		(167,978		)		(196,913		)
Net earnings	$	115,041			$	116,287			$	84,037			$	465,339			$	357,818
Basic and diluted earnings per share	$	0.93			$	0.94			$	0.66			$	3.72			$	2.91
Dividends declared and paid per share	$	0.60			$	0.60			$	0.50			$	2.30			$	2.00

PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS PER SHARE CALCULATIONS
	Three Months Ended												Year Ended
	December 31,				September 30,				December 31,				December 31,
	2018				2018				2017				2018				2017
	(In thousands, except per share data)
Basic Earnings Per Share:
Net earnings	$	115,041			$	116,287			$	84,037			$	465,339			$	357,818
Less: earnings allocated to unvested
restricted stock (1)	(1,219		)		(1,428		)		(951		)		(5,119		)		(4,184		)
Net earnings allocated to common
shares	$	113,822			$	114,859			$	83,086			$	460,220			$	353,634
Weighted-average basic shares and
unvested restricted stock outstanding	123,238				123,657				127,971				125,100				123,060
Less: weighted-average unvested
restricted stock outstanding	(1,426		)		(1,537		)		(1,440		)		(1,460		)		(1,447		)
Weighted-average basic shares
outstanding	121,812				122,120				126,531				123,640				121,613
Basic earnings per share	$	0.93			$	0.94			$	0.66			$	3.72			$	2.91
Diluted Earnings Per Share:
Net earnings allocated to common
shares	$	113,822			$	114,859			$	83,086			$	460,220			$	353,634
Weighted-average basic shares
outstanding	121,812				122,120				126,531				123,640				121,613
Diluted earnings per share	$	0.93			$	0.94			$	0.66			$	3.72			$	2.91
(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
	December 31, 2018							September 30, 2018							December 31, 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)	$	17,275,343	$	272,824	6.27	%		$	16,913,792	$	264,371	6.20	%		$	17,426,873	$	258,586	5.89	%
Investment securities (3)	3,899,520		30,992		3.15	%		3,844,201		29,711		3.07	%		3,807,928		30,709		3.20	%
Deposits in financial
institutions	94,500		527		2.21	%		108,485		519		1.90	%		179,379		576		1.27	%
Total interest-earning
assets (1)	21,269,363		304,343		5.68	%		20,866,478		294,601		5.60	%		21,414,180		289,871		5.37	%
Other assets	3,515,099							3,491,293							3,375,656
Total assets	$	24,784,462						$	24,357,771						$	24,789,836
Liabilities and
Stockholders' Equity:
Interest checking	$	2,785,702	7,932		1.13	%		$	2,433,837	5,135		0.84	%		$	2,340,166	2,891		0.49	%
Money market	5,107,468		13,621		1.06	%		5,270,297		10,689		0.80	%		5,415,630		7,214		0.53	%
Savings	597,259		273		0.18	%		629,241		233		0.15	%		702,023		279		0.16	%
Time	1,932,332		7,008		1.44	%		1,778,552		5,064		1.13	%		2,120,749		3,657		0.68	%
Total interest-bearing
deposits	10,422,761		28,834		1.10	%		10,111,927		21,121		0.83	%		10,578,568		14,041		0.53	%
Borrowings	764,039		4,602		2.39	%		720,449		3,814		2.10	%		445,106		1,366		1.22	%
Subordinated debentures	452,998		7,538		6.60	%		452,312		7,390		6.48	%		458,269		6,234		5.40	%
Total interest-bearing
liabilities	11,639,798		40,974		1.40	%		11,284,688		32,325		1.14	%		11,481,943		21,641		0.75	%
Noninterest-bearing
demand deposits	8,163,699							8,120,306							8,190,134
Other liabilities	222,564							203,958							197,261
Total liabilities	20,026,061							19,608,952							19,869,338
Stockholders' equity	4,758,401							4,748,819							4,920,498
Total liabilities and
stockholders' equity	$	24,784,462						$	24,357,771						$	24,789,836
Net interest income (1)			$	263,369						$	262,276						$	268,230
Net interest spread (1)					4.28	%						4.46	%						4.62	%
Net interest margin (1)					4.91	%						4.99	%						4.97	%
Total deposits (4)	$	18,586,460	$	28,834	0.62	%		$	18,232,233	$	21,121	0.46	%		$	18,768,702	$	14,041	0.30	%
Funding sources (5)	$	19,803,497	$	40,974	0.82	%		$	19,404,994	$	32,325	0.66	%		$	19,672,077	$	21,641	0.44	%
(1) Tax equivalent.
(2) Includes discount accretion on acquired loans of $6.9 million, $6.1 million, and $6.8 million for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively.
(3) Includes tax-equivalent adjustments of $1.1 million, $1.5 million, and $5.0 million for the three months ended December 31, 2018, September 30, 2018, and December 31, 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) 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
	December 31,				September 30,				June 30,				March 31,				December 31,
	2018				2018				2018				2018				2017
	(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks	$	175,830			$	196,502			$	245,998			$	235,061			$	233,215
Interest-earning deposits in financial
institutions	209,937				185,284				205,567				312,735				165,222
Total cash and cash equivalents	385,767				381,786				451,565				547,796				398,437
Securities available-for-sale	4,009,431				3,820,333				3,857,788				3,801,986				3,774,431
Federal Home Loan Bank stock	32,103				31,077				26,271				17,250				20,790
Total investment securities	4,041,534				3,851,410				3,884,059				3,819,236				3,795,221
Loans held for sale	-				-				-				-				481,100
Gross loans and leases held for investment	18,026,365				17,295,589				16,947,502				16,516,627				17,032,221
Deferred fees, net	(68,652		)		(65,443		)		(62,310		)		(61,342		)		(59,478		)
Total loans and leases held for
investment, net of deferred fees	17,957,713				17,230,146				16,885,192				16,455,285				16,972,743
Allowance for loan and lease losses	(132,472		)		(141,920		)		(132,139		)		(134,275		)		(139,456		)
Total loans and leases held for
investment, net	17,825,241				17,088,226				16,753,053				16,321,010				16,833,287
Equipment leased to others under
operating leases	292,677				275,707				266,576				280,648				284,631
Premises and equipment, net	34,661				34,012				34,513				33,686				31,852
Foreclosed assets, net	5,299				4,407				2,231				1,236				1,329
Deferred tax asset, net	17,489				41,280				25,551				12,584				-
Goodwill	2,548,670				2,548,670				2,548,670				2,548,670				2,548,670
Core deposit and customer relationship
intangibles, net	57,120				62,106				67,693				73,280				79,626
Other assets	522,896				494,522				495,646				511,184				540,723
Total assets	$	25,731,354			$	24,782,126			$	24,529,557			$	24,149,330			$	24,994,876
LIABILITIES:
Noninterest-bearing deposits	$	7,888,915			$	7,834,480			$	8,126,153			$	8,232,140			$	8,508,044
Interest-bearing deposits	10,981,586				10,045,063				9,803,039				9,846,648				10,357,492
Total deposits	18,870,501				17,879,543				17,929,192				18,078,788				18,865,536
Borrowings	1,371,114				1,513,166				1,187,226				575,284				467,342
Subordinated debentures	453,846				452,944				451,878				452,223				462,437
Accrued interest payable and other
liabilities	210,305				194,788				183,302				175,545				221,963
Total liabilities	20,905,766				20,040,441				19,751,598				19,281,840				20,017,278
STOCKHOLDERS' EQUITY (1)	4,825,588				4,741,685				4,777,959				4,867,490				4,977,598
Total liabilities and stockholders’
equity	$	25,731,354			$	24,782,126			$	24,529,557			$	24,149,330			$	24,994,876
Book value per share	$	39.17			$	38.46			$	38.36			$	38.47			$	38.65
Tangible book value per share (2)	$	18.02			$	17.28			$	17.35			$	17.75			$	18.24
Shares outstanding	123,189,833				123,283,450				124,567,950				126,537,871				128,782,878
(1) Includes net unrealized (loss) gain on
securities available-for-sale, net	$	(6,075	)		$	(43,854	)		$	(22,340	)		$	(11,936	)		$	31,171
(2) Non-GAAP measure.

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS
	Three Months Ended
	December 31,				September 30,				June 30,				March 31,				December 31,
	2018				2018				2018				2018				2017
	(Dollars in thousands, except per share data)
Interest income:
Loans and leases	$	272,522			$	264,062			$	260,300			$	251,085			$	258,309
Investment securities	29,690				28,061				27,730				26,138				25,712
Deposits in financial institutions	527				519				484				552				576
Total interest income	302,739				292,642				288,514				277,775				284,597
Interest expense:
Deposits	28,834				21,121				16,367				13,818				14,041
Borrowings	4,602				3,814				2,649				920				1,366
Subordinated debentures	7,538				7,390				7,166				6,537				6,234
Total interest expense	40,974				32,325				26,182				21,275				21,641
Net interest income	261,765				260,317				262,332				256,500				262,956
Provision for credit losses	12,000				11,500				17,500				4,000				6,406
Net interest income after
provision for credit losses	249,765				248,817				244,832				252,500				256,550
Noninterest income:
Service charges on deposit accounts	4,091				3,979				4,265				4,174				4,574
Other commissions and fees	11,114				12,397				11,767				10,265				10,505
Leased equipment income	9,384				9,120				9,790				9,587				8,258
Gain on sale of loans and leases	-				-				106				4,569				1,988
Gain (loss) on sale of securities	786				826				253				6,311				(3,329		)
Other income	8,151				10,590				13,457				3,653				4,799
Total noninterest income	33,526				36,912				39,638				38,559				26,795
Noninterest expense:
Compensation	69,299				72,333				69,913				71,023				71,986
Occupancy	13,356				13,069				13,575				13,223				12,715
Data processing	6,930				6,740				6,896				6,659				6,764
Other professional services	6,198				6,058				5,257				4,439				5,786
Insurance and assessments	4,202				5,446				5,330				5,727				5,384
Intangible asset amortization	4,986				5,587				5,587				6,346				5,062
Leased equipment depreciation	5,758				5,001				5,237				5,375				5,048
Foreclosed assets (income) expense, net	(311		)		(257		)		(61		)		(122		)		(475		)
Acquisition, integration and
reorganization costs	970				800				-				-				16,085
Loan expense	2,991				2,249				3,058				2,271				3,140
Other expense	14,856				11,127				11,657				12,454				11,373
Total noninterest expense	129,235				128,153				126,449				127,395				142,868
Earnings before income taxes	154,056				157,576				158,021				163,664				140,477
Income tax expense	(39,015		)		(41,289		)		(42,286		)		(45,388		)		(56,440		)
Net earnings	$	115,041			$	116,287			$	115,735			$	118,276			$	84,037
Basic and diluted earnings per share	$	0.93			$	0.94			$	0.92			$	0.93			$	0.66
Dividends declared and paid per share	$	0.60			$	0.60			$	0.60			$	0.50			$	0.50

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER SELECTED FINANCIAL DATA
	At or For the Three Months Ended
	December 31,				September 30,				June 30,				March 31,				December 31,
	2018				2018				2018				2018				2017
	(Dollars in thousands)
Performance Ratios:
Return on average assets (1)	1.84		%		1.89		%		1.93		%		1.99		%		1.34		%
Return on average equity (1)	9.59		%		9.72		%		9.61		%		9.79		%		6.78		%
Return on average tangible equity (1)(2)	21.23		%		21.61		%		20.98		%		21.08		%		13.75		%
Yield on average loans and leases (1)(3)	6.27		%		6.20		%		6.30		%		6.11		%		5.89		%
Yield on average interest-earning
assets (1)(3)	5.68		%		5.60		%		5.70		%		5.53		%		5.37		%
Cost of average total deposits (1)	0.62		%		0.46		%		0.37		%		0.31		%		0.30		%
Cost of average time deposits (1)	1.44		%		1.13		%		0.92		%		0.78		%		0.62		%
Cost of average interest-bearing
liabilities (1)	1.40		%		1.14		%		0.98		%		0.81		%		0.75		%
Cost of average funding sources (1)	0.82		%		0.66		%		0.55		%		0.45		%		0.44		%
Net interest spread (1)(3)	4.28		%		4.46		%		4.72		%		4.72		%		4.62		%
Net interest margin (1)(3)	4.91		%		4.99		%		5.18		%		5.11		%		4.97		%
Efficiency ratio	41.7		%		40.9		%		39.8		%		41.7		%		41.0		%
Noninterest expense as a percentage
of average assets (1)	2.07		%		2.09		%		2.11		%		2.15		%		2.29		%
Average Balances:
Loans and leases, net of deferred fees	$	17,275,343			$	16,913,792			$	16,576,361			$	16,682,124			$	17,426,873
Interest-earning assets	21,269,363				20,866,478				20,492,121				20,514,936				21,414,180
Total assets	24,784,462				24,357,771				23,999,637				24,071,148				24,789,836
Noninterest-bearing deposits	8,163,699				8,120,306				8,253,413				8,311,104				8,190,134
Interest-bearing deposits	10,422,761				10,111,927				9,703,611				9,959,243				10,578,568
Total deposits	18,586,460				18,232,233				17,957,024				18,270,347				18,768,702
Borrowings and subordinated
debentures	1,217,037				1,172,761				1,001,638				700,941				903,375
Interest-bearing liabilities	11,639,798				11,284,688				10,705,249				10,660,184				11,481,943
Funding sources	19,803,497				19,404,994				18,958,662				18,971,288				19,672,077
Stockholders' equity	4,758,401				4,748,819				4,832,480				4,901,207				4,920,498
(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
	December 31,				September 30,				June 30,				March 31,				December 31,
	2018				2018				2018				2018				2017
	(Dollars in thousands)
Credit Quality Ratios (1):
Nonaccrual loans and leases held for
investment to loans and leases held
for investment	0.44		%		0.66		%		0.67		%		0.63		%		0.92		%
Nonperforming assets to loans and
leases held for investment and
foreclosed assets	0.47		%		0.68		%		0.69		%		0.64		%		0.93		%
Classified loans and leases held for
investment to loans and leases held
for investment	1.32		%		1.51		%		1.40		%		1.26		%		1.65		%
Trailing 12 months net charge-offs
to average loans and leases
held for investment	0.26		%		0.28		%		0.28		%		0.31		%		0.40		%
Allowance for credit losses to loans
and leases held for investment	0.94		%		1.03		%		0.99		%		1.02		%		0.96		%
Allowance for credit losses to
nonaccrual loans and leases held
for investment	213.5		%		156.9		%		147.3		%		161.1		%		103.8		%
PacWest Bancorp Consolidated
Capital:
Tier 1 leverage ratio (2)	10.13		%		10.10		%		10.33		%		10.66		%		10.66		%
Common equity tier 1 capital ratio (2)	10.01		%		10.18		%		10.59		%		11.16		%		10.91		%
Tier 1 capital ratio (2)	10.01		%		10.18		%		10.59		%		11.16		%		10.91		%
Total capital ratio (2)	12.72		%		13.03		%		13.48		%		14.11		%		13.75		%
Risk-weighted assets (2)	$	22,525,096			$	21,650,542			$	20,929,325			$	20,523,487			$	21,657,591
Equity to assets ratio	18.75		%		19.13		%		19.48		%		20.16		%		19.91		%
Tangible common equity ratio (3)	9.60		%		9.61		%		9.86		%		10.43		%		10.50		%
Book value per share	$	39.17			$	38.46			$	38.36			$	38.47			$	38.65
Tangible book value per share (3)	$	18.02			$	17.28			$	17.35			$	17.75			$	18.24
Pacific Western Bank Capital:
Tier 1 leverage ratio (2)	10.80		%		10.78		%		11.11		%		11.33		%		11.75		%
Common equity tier 1 capital ratio (2)	10.68		%		10.87		%		11.40		%		11.86		%		11.91		%
Tier 1 capital ratio (2)	10.68		%		10.87		%		11.40		%		11.86		%		11.91		%
Total capital ratio (2)	11.44		%		11.69		%		12.21		%		12.67		%		12.69		%
(1) Ratios related to 2018 periods are for total loans and leases.  Ratios related to the 2017 period are for Non-PCI loans and leases.
(2) Capital information for December 31, 2018 is preliminary.
(3) Non-GAAP measure.

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												Year Ended
	December 31,				September 30,				December 31,				December 31,
Return on Average Tangible Equity	2018				2018				2017				2018				2017
	(Dollars in thousands)
Net earnings	$	115,041			$	116,287			$	84,037			$	465,339			$	357,818
Average stockholders' equity	$	4,758,401			$	4,748,819			$	4,920,498			$	4,809,667			$	4,641,495
Less: Average intangible assets	2,608,497				2,614,055				2,495,876				2,616,820				2,279,010
Average tangible common equity	$	2,149,904			$	2,134,764			$	2,424,622			$	2,192,847			$	2,362,485
Return on average equity (1)	9.59		%		9.72		%		6.78		%		9.68		%		7.71		%
Return on average tangible equity (2)	21.23		%		21.61		%		13.75		%		21.22		%		15.15		%
(1) Annualized net earnings divided by average stockholders' equity.
(2) Annualized net earnings divided by average tangible common equity.

Tangible Common Equity Ratio/	December 31,				September 30,				June 30,				March 31,				December 31,
Tangible Book Value Per Share	2018				2018				2018				2018				2017
	(Dollars in thousands, except per share data)
Stockholders' equity	$	4,825,588			$	4,741,685			$	4,777,959			$	4,867,490			$	4,977,598
Less: Intangible assets	2,605,790				2,610,776				2,616,363				2,621,950				2,628,296
Tangible common equity	$	2,219,798			$	2,130,909			$	2,161,596			$	2,245,540			$	2,349,302
Total assets	$	25,731,354			$	24,782,126			$	24,529,557			$	24,149,330			$	24,994,876
Less: Intangible assets	2,605,790				2,610,776				2,616,363				2,621,950				2,628,296
Tangible assets	$	23,125,564			$	22,171,350			$	21,913,194			$	21,527,380			$	22,366,580
Equity to assets ratio	18.75		%		19.13		%		19.48		%		20.16		%		19.91		%
Tangible common equity ratio (1)	9.60		%		9.61		%		9.86		%		10.43		%		10.50		%
Book value per share	$	39.17			$	38.46			$	38.36			$	38.47			$	38.65
Tangible book value per share (2)	$	18.02			$	17.28			$	17.35			$	17.75			$	18.24
Shares outstanding	123,189,833				123,283,450				124,567,950				126,537,871				128,782,878
(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by shares outstanding.

Contact:	Matthew P. Wagner		Patrick J. Rusnak
	President and CEO		Executive Vice President and CFO
Phone:	310-887-8520		714-989-4705