PacWest Bancorp(US:PACW)2021-02-26 22:21Credit Losses and Provisions - The total allowance for credit losses as of December 31, 2020, was $433,752,000, compared to $174,646,000 in 2019, reflecting a significant increase [358]. - The allowance for loan and lease losses was $348,181,000 in 2020, up from $138,785,000 in 2019, indicating a rise of 151% [358]. - The reserve for unfunded loan commitments increased to $85,571,000 in 2020 from $35,861,000 in 2019, representing a growth of 138% [358]. - The allowance for credit losses to loans and leases held for investment ratio was 2.27% as of December 31, 2020, compared to 0.93% in 2019 [358]. - The allowance for credit losses to nonaccrual loans and leases held for investment was 475.8% in 2020, significantly higher than 189.1% in 2019 [358]. - Excluding PPP loans, the allowance for credit losses ratio as of December 31, 2020, would be 2.41% [359]. - The allowance for credit losses increased to $433.8 million as of December 31, 2020, from $174.6 million in 2019, reflecting a significant rise in provisions for credit losses [361]. - Total provision for credit losses for 2020 was $339 million, a substantial increase from $22 million in 2019 [361]. - Net charge-offs for 2020 were $87.2 million, compared to $16.7 million in 2019, indicating a deterioration in credit quality [361]. - Commercial real estate mortgage gross charge-offs rose to $10.2 million in 2020 from $0.9 million in 2019, largely due to pandemic-related impacts on retail properties [365]. - Asset-based gross charge-offs decreased slightly to $11.8 million in 2020 from $12 million in 2019, with a notable charge-off related to a single loan in the equipment finance subclass [366]. - Venture capital gross charge-offs decreased to $6.8 million in 2020 from $9.4 million in 2019, attributed to improved underwriting and credit administration [368]. - Other commercial gross charge-offs surged to $63.5 million in 2020 from $9.1 million in 2019, with $59.6 million related to five security monitoring loans [369]. - The net charge-offs to average loans and leases ratio was 0.45% for 2020, up from 0.09% in 2019, indicating increased credit risk [361]. - The balance of the allowance for credit losses at the beginning of 2020 was $174.6 million, reflecting a cumulative effect of $7.3 million from the CECL accounting standard [361]. - Total loans and leases charged off in 2020 amounted to $93.6 million, significantly higher than $32.3 million in 2019 [364]. - The total recoveries for the year ended December 31, 2020, were $6.368 million, a decrease of 59% from $15.575 million in 2019 [370]. Loans and Leases - The total loans and leases held for investment, net of deferred fees, amounted to $13,794,198,000 as of December 31, 2020 [348]. - The fixed-rate loans due after one year totaled $3,967,191,000, while variable-rate loans amounted to $9,827,007,000 [348]. - The total allowance for loan and lease losses across all segments was $348.2 million as of December 31, 2020 [371]. - The allowance for loan and lease losses for real estate mortgage loans increased to $138.3 million in 2020 from $44.6 million in 2019, representing a ratio of 1.75% to real estate mortgage loans [372]. - The allowance for loan and lease losses for real estate construction and land loans rose to $78.4 million in 2020 from $30.5 million in 2019, with a ratio of 2.33% [373]. - The allowance for loan and lease losses for commercial loans and leases increased to $126.4 million in 2020 from $61.5 million in 2019, with a ratio of 1.68% [374]. - Total loans and leases held for investment increased to $19.1 billion, up from $18.8 billion in 2019, with classified loans increasing by $89.4 million to $265.3 million [390][391]. - Special mention loans and leases rose by $398.3 million to $721.3 million, driven by significant increases in commercial real estate mortgage and asset-based loans [393]. Deposits and Liquidity - Total deposits increased by $5.7 billion, or 30%, to $24.9 billion at December 31, 2020, primarily due to a $6.1 billion increase in core deposits [376]. - Noninterest-bearing demand deposits reached $9.2 billion, accounting for 37% of total deposits as of December 31, 2020 [376]. - Interest checking deposits increased by $2.2 billion, while money market deposits rose by $1.8 billion during 2020 [376]. - The company’s top ten depositors represented 13.4% of total deposits, indicating a diversified deposit base [376]. - The increase in core deposits was significantly driven by capital market activities and PPP loan proceeds being deposited into customer accounts [376]. - As of December 31, 2020, total time deposits amounted to $1.53 billion, with $994.2 million due within 12 months [377]. - The Bank's primary liquidity increased by $4.0 billion to $7.9 billion, primarily due to a $2.5 billion increase in interest-earning deposits and a $1.4 billion increase in securities available-for-sale [406]. - Core deposits totaled $22.3 billion at December 31, 2020, representing 89% of the Company's total deposits, indicating a stable funding source [408]. - Brokered deposits amounted to $1.3 billion at December 31, 2020, down from $1.7 billion in 2019, indicating a reduction in reliance on brokered funding [410]. - The Company had contractual obligations totaling $2.44 billion as of December 31, 2020, with time deposits accounting for $1.53 billion of this total [417]. - Loan commitments and standby letters of credit were $7.6 billion and $337.3 million, respectively, as of December 31, 2020, contributing to potential future profitability [421]. - The Bank maintained compliance with all established liquidity guidelines as of December 31, 2020, ensuring adequate liquidity levels [411]. Capital and Borrowings - The capital ratios as of December 31, 2020, included a Tier 1 capital ratio of 8.55%, CET1 capital ratio of 10.53%, and total capital ratio of 13.76%, all exceeding minimum required levels [398]. - The Company and Bank were in compliance with the capital conservation buffer requirements, maintaining a minimum common equity Tier 1 risk-based capital ratio of 7.00% [396]. - The carrying value of subordinated debentures totaled $465.8 million at December 31, 2020, with $451.8 million included in Tier II capital [400]. - The total gross subordinated debentures amounted to $543.3 million as of December 31, 2020, with a weighted average rate of 2.24% [381]. - The weighted average rate for net subordinated debentures was 4.58% for the year ended December 31, 2020 [381]. - Total borrowings as of December 31, 2020, were $5.0 million, significantly reduced from $1.76 billion in 2019 [380]. - The maximum borrowing capacity under the secured credit line with FHLB was $3.3 billion, with $3.295 billion available as of December 31, 2020 [379]. Nonperforming Assets - Nonperforming assets totaled $105.2 million as of December 31, 2020, an increase from $92.8 million in 2019 [382]. - Nonaccrual loans and leases held for investment decreased by $1.2 million to $91.2 million during 2020, primarily due to $88.3 million in charge-offs [384]. - Foreclosed assets increased by $13.6 million to $14.0 million at December 31, 2020, mainly due to the addition of a commercial real estate property valued at $12.6 million [387]. - Classified loans and leases held for investment increased to $265.3 million as of December 31, 2020, compared to $175.9 million in 2019 [382]. - Classified loans peaked at $293.2 million in Q2 2020, reflecting proactive downgrades due to the economic impact of the COVID-19 pandemic [391]. Management and Governance - The Executive Management Asset/Liability Management Committee is responsible for managing liquidity to meet financial commitments and customer demands [402]. - The Company maintains pools of liquid assets on-balance sheet, including cash and due from banks, to manage liquidity effectively [403]. - The Company is required to receive approval from the FRB prior to declaring dividends due to insufficient net earnings since the goodwill impairment charge in Q1 2020 [401]. - A new Stock Repurchase Program was authorized for up to $200 million, but no shares were repurchased under this program by December 31, 2020 [416].