PacWest Bancorp Announces Results for the Fourth Quarter and Full Year 2020
Fourth Quarter 2020 HighlightsNet Earnings of $116.8 Million, or $0.99 Per Diluted ShareStrong Pre-Provision, Pre-Tax Net Revenue (“PPNR”) of $163.4 MillionProvision for Credit Losses of $10.0 Million in Q4 Compared to $97.0 Million in Q3Core Deposits Up $1.1 Billion or 5% in Q4; Represents 89% of Total DepositsStrong Capital Position – CET1 Ratio of 10.53%Full Year 2020 HighlightsExcluding Goodwill Impairment, Net Earnings of $232.4 Million, or $1.97 Per Diluted ShareNet Loss of $1.24 Billion, or $(10.61) Per Diluted Share Due to $1.47 Billion Goodwill ImpairmentStrong Pre-Provision, Pre-Tax Net Revenue (“PPNR”) of $646.6 MillionProvision for Credit Losses of $339.0 Million Compared to $22.0 Million in 2019Core Deposits Up $6.1 Billion or 38% in 2020Strong Capital Position – Increased CET1 Ratio 75 Basis Points to 10.53% in 2020Increased Allowance for Credit Losses Ratio to 2.41% (Excluding PPP Loans)LOS ANGELES, Jan. 20, 2021 (GLOBE NEWSWIRE) — PacWest Bancorp (Nasdaq: PACW) today announced net earnings for the fourth quarter of 2020 of $116.8 million, or $0.99 per diluted share, compared to net earnings for the third quarter of 2020 of $45.5 million, or $0.38 per diluted share. The increase in net earnings for the fourth quarter was due primarily to an $87.0 million decrease in the provision for credit losses.Net loss for the full year 2020 was $1.24 billion, or $10.61 per diluted share, compared to net earnings for the full year 2019 of $468.6 million, or $3.90 per diluted share. The decrease in net earnings for 2020 was primarily due to a $1.47 billion goodwill impairment charge and a higher provision for credit losses attributable mainly to the significant deterioration in the economic forecast used to estimate the allowance for credit losses as a result of the COVID-19 pandemic.Matt Wagner, President and CEO, commented, “We finished the year strong with fourth quarter earnings boosted by continued asset growth and improved credit costs. Our fourth quarter results produced a return on assets of 1.58% and a return on tangible equity of 19.63%.”Mr. Wagner continued, “We experienced strong deposit growth again in the fourth quarter, resulting in further increases in our liquidity position. Our average on-balance sheet cash balance grew to $3.6 billion in the fourth quarter with a yield of 13 basis points. While our focus is on managing net interest income, this excess liquidity had a negative impact on our fourth quarter NIM of 46 basis points.”Mr. Wagner added, “Our priority continues to be on mitigating potential credit losses in our portfolios, especially those portfolios impacted most by COVID-19. We are also focused on assisting our customers with applying for new PPP loans and forgiveness for their previous PPP loans during 2021.”Mr. Wagner added, “In 2020, our operating results were significantly impacted by the economic impact of the COVID-19 pandemic. These factors resulted in the goodwill impairment in the first quarter and elevated credit loss provisions in 2020, however, our strong PPNR allowed us to internally generate capital and build our allowance for credit losses during the year. As we head into 2021 with good momentum, we will continue to focus on the safety of our employees amid the pandemic, delivering high quality service to our valued clients, while strategically managing our business to optimize profitability in this low-rate environment.”FINANCIAL HIGHLIGHTSINCOME STATEMENT HIGHLIGHTS
Net Interest IncomeNet interest income increased by $7.9 million to $259.2 million for the fourth quarter of 2020 compared to $251.3 million for the third quarter of 2020 due mainly to higher income on investment securities, higher loan prepayment fees, higher recapture of nonaccrual interest, higher amortized loan fee income from PPP loan forgiveness, and lower interest expense, partially offset by a negative impact on net interest income due to the change in the earning asset mix and a lower balance of average loans and leases. The tax equivalent yield on average loans and leases was 5.15% for the fourth quarter of 2020 compared to 5.01% for the third quarter of 2020. The increase in the tax equivalent yield on average loans and leases was primarily due to higher loan prepayment fees, higher recapture of nonaccrual interest, and higher amortized loan fee income from PPP loan forgiveness in the fourth quarter as compared to the third quarter.The tax equivalent NIM was 3.83% for the fourth quarter of 2020 compared to 3.90% for the third quarter of 2020. The decrease in the NIM was due mostly to the change in the earning asset mix. Average loans and leases decreased by $426.5 million, while the average balance of deposits in financial institutions increased by $1.0 billion and the average balance of investment securities increased by $781.1 million in the fourth quarter of 2020. This excess liquidity had a negative impact on the fourth quarter tax equivalent NIM of 46 basis points.The cost of average total deposits decreased to 0.14% for the fourth quarter of 2020 from 0.17% for the third quarter of 2020. The lower cost of average total deposits was due primarily to the repricing of maturing brokered time deposits.Provision for Credit LossesThe following table presents details of the provision for credit losses for the periods indicated:The provision for credit losses decreased by $87.0 million to $10.0 million for the fourth quarter of 2020 compared to $97.0 million for the third quarter of 2020. This reduction reflected improvement in certain key macro-economic forecast variables, a lower provision for unfunded loan commitments, and decreased provisions for individually evaluated loans and leases.Noninterest IncomeThe following table presents details of noninterest income for the periods indicated:Noninterest income increased by $1.6 million to $39.9 million for the fourth quarter of 2020 compared to $38.3 million for the third quarter of 2020 due primarily to an increase of $6.8 million in warrant income attributable to higher gains from exercised warrants, and an increase of $1.6 million in gain on sale of loans and leases, offset partially by decreases of $5.3 million in gain on sale of securities and $1.9 million in dividends and gains on equity investments. The increase in the gain on sale of loans and leases resulted from the sales of $119.9 million of loans for a gain of $1.7 million in the fourth quarter compared to sales of $3.0 million for a gain of $35 thousand in the third quarter. The decrease in the gain on sale of securities resulted from minimal sales in the fourth quarter compared to sales of $17.0 million of securities for a gain of $5.3 million in the third quarter. The decrease in dividends and gains on equity investments was due primarily to lower net fair value gains on equity investments still held, offset partially by higher income from distributions on fair value equity investments.Noninterest ExpenseThe following table presents details of noninterest expense for the periods indicated:Noninterest expense increased by $2.3 million to $135.7 million for the fourth quarter of 2020 compared to $133.4 million for the third quarter of 2020 attributable primarily to increases of $2.1 million in other professional services, $1.1 million in insurance and assessments, $1.1 million in acquisition, integration and reorganization costs, and $1.1 million in other expense, offset partially by a decrease of $2.0 million in compensation expense. The increase in other professional services was due mainly to higher consulting expense. The increase in insurance and assessments expense was due to an increase in FDIC assessment expense. The increase in acquisition, integration and reorganization costs was due to advisory services. The increase in other expense was due primarily to an increase in franchise taxes. The decrease in compensation expense was due mainly to lower bonus accruals and lower stock compensation expense.Income TaxesThe effective income tax rate was 23.8% for the fourth quarter of 2020 compared to 23.1% for the third quarter of 2020. The effective tax rate for the year ended December 31, 2020 was (6.5%), however when excluding the non-deductible goodwill impairment, the effective tax rate for the full year 2020 was 24.4%. The effective tax rate for the full year 2021 is currently estimated to be in the range of 26% to 28%.BALANCE SHEET HIGHLIGHTSLoans and LeasesThe following table presents roll forwards of loans and leases held for investment, net of deferred fees, for the periods indicatedLoans and leases held for investment, net of deferred fees, increased by $57.2 million in the fourth quarter of 2020 to $19.1 billion at December 31, 2020. The majority of the increase in the loans and leases balance for the fourth quarter of 2020 related to increases in the asset-based and income producing and other residential loan classes, offset partially by decreases in the other commercial and commercial construction and land classes. The weighted average rate on fourth quarter production decreased to 4.41% due to fourth quarter production including a higher percentage of lower-rate products such as equity fund loans and multi-family loans as compared to third quarter production. The weighted average rate on new production for the year ended December 31, 2020 of 3.57% was negatively impacted by the $1.2 billion of Paycheck Protection Program (“PPP”) loans originated with a coupon rate of 1%. Excluding PPP loans, the weighted average rate on new production for the year was 4.66%. For the year ended December 31, 2020, loans and leases held for investment, net of deferred fees, increased by $236.5 million. The majority of the increase in the loans and leases balance for the year related to increases in the other commercial and residential construction and land classes, offset partially by decreases in the venture capital, asset-based, and consumer loan classes.The following table presents the composition of loans and leases held for investment by loan portfolio segment and class, net of deferred fees, as of the dates indicated:Allowance for Credit Losses
The following tables present roll forwards of the allowance for credit losses for the periods indicated:The allowance for credit losses decreased by $8.8 million in the fourth quarter of 2020 to $433.8 million at December 31, 2020. The decrease in the allowance for credit losses during the fourth quarter was attributable to $18.8 million in net charge-offs, offset partially by a $10.0 million provision for credit losses.Net charge-offs were $18.8 million for the fourth quarter of 2020. Gross charge-offs of $20.3 million were reduced by recoveries of $1.5 million. The most significant charge-off was $15.5 million and related to a security monitoring loan.Net charge-offs were $36.1 million for the third quarter of 2020. Gross charge-offs of $37.3 million were reduced by recoveries of $1.2 million. The most significant charge-off was $32.8 million and also related to a security monitoring loan. Security monitoring loans have decreased 47% from $619.3 million as of December 31, 2019 to $329.3 million as of December 31, 2020 since ceasing new originations in the fourth quarter of 2019 while actively reducing the remaining loans. As of December 31, 2020, $250.6 million of these are performing and pass-rated, while $78.7 million are classified, of which $32.5 million are on nonaccrual.For the fourth quarter of 2020 and third quarter of 2020, annualized net charge-offs to average loans and leases were 0.40% and 0.75%, respectively.The allowance for credit losses as a percentage of loans and leases held for investment was 2.27% at December 31, 2020 and 2.33% at September 30, 2020. The allowance for loan and lease losses as a percentage of loans and leases held for investment was 1.82% at December 31, 2020 and September 30, 2020. The allowance for credit losses and allowance for loan and lease losses as a percentage of loans and leases held for investment, excluding PPP loans that are fully guaranteed and do not carry any allowance, were 2.41% and 1.93% at December 31, 2020, respectively, compared to 2.48% and 1.94% at September 30, 2020, respectively.For the full year 2020, gross charge-offs were $93.6 million and included $63.5 million for other commercial loans, of which $59.6 million related to security monitoring loans, $11.8 million for asset-based loans, $10.2 million for commercial real estate loans, and $6.8 million for venture capital loans compared to gross charge-offs for the full year 2019 of $32.3 million that included $12.0 million for asset-based loans, of which $11.8 million related to a single loan, $9.4 million for venture capital loans, and $9.1 million for other commercial loans.For the full year 2020, recoveries were $6.4 million and included $3.6 million for other commercial loans and $1.3 million for venture capital loans compared to recoveries for the full year 2019 of $15.6 million that included $8.2 million for venture capital loans, $4.8 million for other commercial loans, and $1.4 million for asset-based loans.For the full year 2020, net charge-offs to average loans and leases increased to 0.45% from 0.09% for the full year 2019.Deposits and Client Investment FundsThe following table presents the composition of our deposit portfolio as of the dates indicated:At December 31, 2020, core deposits totaled $22.3 billion, or 89% of total deposits, including $9.2 billion of noninterest-bearing demand deposits, or 37% of total deposits. Core deposits increased by $1.1 billion in the fourth quarter driven by continued strong deposit growth from our venture banking clients. For the year ended December 31, 2020, core deposits increased by $6.1 billion and total deposits increased by $5.7 billion.In addition to deposit products, we also offer alternative non-depository cash investment options for select clients; these alternatives include investments managed by Pacific Western Asset Management Inc. (“PWAM”), our registered investment advisor subsidiary, and third-party sweep products. Total off-balance sheet client investment funds at December 31, 2020 were $1.3 billion, of which $1.0 billion was managed by PWAM.CREDIT QUALITYThe following table presents loan and lease credit quality metrics as of the dates indicated:After taking pro-active and decisive steps in the first quarter at the onset of the pandemic to downgrade certain loans, the level of special mention loans and leases, which peaked in the first quarter of 2020, and classified and nonaccrual loans and leases, which peaked in the second quarter of 2020, have declined with the enhanced ongoing monitoring of the loan and lease portfolio during the course of the year. Despite the early actions, enhanced monitoring, and build in the allowance for credit losses, certain credit metrics remain elevated as we continue to manage the credit environment and economic impacts caused by the pandemic.
The following table presents nonaccrual loans and leases and accruing loans and leases past due between 30 and 89 days by loan portfolio segment and class as of the dates indicated:During the fourth quarter of 2020, nonaccrual loans and leases increased by $5.5 million due primarily to an addition of one security monitoring loan for $26.3 million, partially offset by the sale of one security monitoring loan for $12.1 million and the paydown of another security monitoring loan for $5.8 million.CAPITALThe following table presents certain actual capital ratios and ratios excluding PPP loans:ABOUT PACWEST BANCORPPacWest Bancorp (“PacWest”) is a bank holding company with over $29 billion in assets headquartered in Los Angeles, California, with executive offices in Denver, Colorado, with one wholly-owned banking subsidiary, Pacific Western Bank (the “Bank”). The Bank has 70 full-service branches located in California, one branch located in Durham, North Carolina, and one branch located in Denver, Colorado. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed 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 or Pacific Western Bank, visit www.pacwest.com.FORWARD LOOKING STATEMENTSThis communication contains certain forward-looking information about PacWest Bancorp that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about future financial and operational results, expectations, or intentions are forward-looking statements. Such statements are based on information available at the time of the 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. The COVID-19 pandemic is adversely affecting PacWest Bancorp, its employees, customers and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity and prospects is uncertain. The length of the COVID-19 pandemic and the severity of its impact on key macro-economic indicators such as unemployment and GDP may have a material impact on our allowance for credit losses and related provision for credit losses. Continued deterioration in general business and economic conditions could adversely affect PacWest Bancorp’s revenues and the values of its assets, including goodwill, and liabilities, lead to a tightening of credit, and increase stock price volatility. In addition, PacWest Bancorp’s results could be adversely affected by changes in interest rates, sustained high unemployment rates, deterioration in the credit quality of its loan portfolio or in the value of the collateral securing those loans, deterioration in the value of its investment securities, the magnitude of individual loan losses on security monitoring loans, and legal and regulatory developments. Actual results may differ materially from those set forth or implied in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by the Company with the U.S. 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.
GAAP TO NON-GAAP RECONCILIATIONSThis press release contains certain non-GAAP financial disclosures for: (1) PPNR, (2) PPNR return on average assets (3) return on average tangible equity, (4) tangible common equity ratio, and (5) 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, tangible book value per share, and PPNR is prevalent among banking regulators, investors, and analysts. Accordingly, we disclose the non-GAAP measures in addition to the related GAAP measures of: (1) net earnings, (2) return on average assets, (3) return on average equity, (4) equity to assets ratio, and (5) book value per share.The tables below present the reconciliations of these GAAP financial measures to the related non-GAAP financial measures:
Net Interest IncomeNet interest income increased by $7.9 million to $259.2 million for the fourth quarter of 2020 compared to $251.3 million for the third quarter of 2020 due mainly to higher income on investment securities, higher loan prepayment fees, higher recapture of nonaccrual interest, higher amortized loan fee income from PPP loan forgiveness, and lower interest expense, partially offset by a negative impact on net interest income due to the change in the earning asset mix and a lower balance of average loans and leases. The tax equivalent yield on average loans and leases was 5.15% for the fourth quarter of 2020 compared to 5.01% for the third quarter of 2020. The increase in the tax equivalent yield on average loans and leases was primarily due to higher loan prepayment fees, higher recapture of nonaccrual interest, and higher amortized loan fee income from PPP loan forgiveness in the fourth quarter as compared to the third quarter.The tax equivalent NIM was 3.83% for the fourth quarter of 2020 compared to 3.90% for the third quarter of 2020. The decrease in the NIM was due mostly to the change in the earning asset mix. Average loans and leases decreased by $426.5 million, while the average balance of deposits in financial institutions increased by $1.0 billion and the average balance of investment securities increased by $781.1 million in the fourth quarter of 2020. This excess liquidity had a negative impact on the fourth quarter tax equivalent NIM of 46 basis points.The cost of average total deposits decreased to 0.14% for the fourth quarter of 2020 from 0.17% for the third quarter of 2020. The lower cost of average total deposits was due primarily to the repricing of maturing brokered time deposits.Provision for Credit LossesThe following table presents details of the provision for credit losses for the periods indicated:The provision for credit losses decreased by $87.0 million to $10.0 million for the fourth quarter of 2020 compared to $97.0 million for the third quarter of 2020. This reduction reflected improvement in certain key macro-economic forecast variables, a lower provision for unfunded loan commitments, and decreased provisions for individually evaluated loans and leases.Noninterest IncomeThe following table presents details of noninterest income for the periods indicated:Noninterest income increased by $1.6 million to $39.9 million for the fourth quarter of 2020 compared to $38.3 million for the third quarter of 2020 due primarily to an increase of $6.8 million in warrant income attributable to higher gains from exercised warrants, and an increase of $1.6 million in gain on sale of loans and leases, offset partially by decreases of $5.3 million in gain on sale of securities and $1.9 million in dividends and gains on equity investments. The increase in the gain on sale of loans and leases resulted from the sales of $119.9 million of loans for a gain of $1.7 million in the fourth quarter compared to sales of $3.0 million for a gain of $35 thousand in the third quarter. The decrease in the gain on sale of securities resulted from minimal sales in the fourth quarter compared to sales of $17.0 million of securities for a gain of $5.3 million in the third quarter. The decrease in dividends and gains on equity investments was due primarily to lower net fair value gains on equity investments still held, offset partially by higher income from distributions on fair value equity investments.Noninterest ExpenseThe following table presents details of noninterest expense for the periods indicated:Noninterest expense increased by $2.3 million to $135.7 million for the fourth quarter of 2020 compared to $133.4 million for the third quarter of 2020 attributable primarily to increases of $2.1 million in other professional services, $1.1 million in insurance and assessments, $1.1 million in acquisition, integration and reorganization costs, and $1.1 million in other expense, offset partially by a decrease of $2.0 million in compensation expense. The increase in other professional services was due mainly to higher consulting expense. The increase in insurance and assessments expense was due to an increase in FDIC assessment expense. The increase in acquisition, integration and reorganization costs was due to advisory services. The increase in other expense was due primarily to an increase in franchise taxes. The decrease in compensation expense was due mainly to lower bonus accruals and lower stock compensation expense.Income TaxesThe effective income tax rate was 23.8% for the fourth quarter of 2020 compared to 23.1% for the third quarter of 2020. The effective tax rate for the year ended December 31, 2020 was (6.5%), however when excluding the non-deductible goodwill impairment, the effective tax rate for the full year 2020 was 24.4%. The effective tax rate for the full year 2021 is currently estimated to be in the range of 26% to 28%.BALANCE SHEET HIGHLIGHTSLoans and LeasesThe following table presents roll forwards of loans and leases held for investment, net of deferred fees, for the periods indicatedLoans and leases held for investment, net of deferred fees, increased by $57.2 million in the fourth quarter of 2020 to $19.1 billion at December 31, 2020. The majority of the increase in the loans and leases balance for the fourth quarter of 2020 related to increases in the asset-based and income producing and other residential loan classes, offset partially by decreases in the other commercial and commercial construction and land classes. The weighted average rate on fourth quarter production decreased to 4.41% due to fourth quarter production including a higher percentage of lower-rate products such as equity fund loans and multi-family loans as compared to third quarter production. The weighted average rate on new production for the year ended December 31, 2020 of 3.57% was negatively impacted by the $1.2 billion of Paycheck Protection Program (“PPP”) loans originated with a coupon rate of 1%. Excluding PPP loans, the weighted average rate on new production for the year was 4.66%. For the year ended December 31, 2020, loans and leases held for investment, net of deferred fees, increased by $236.5 million. The majority of the increase in the loans and leases balance for the year related to increases in the other commercial and residential construction and land classes, offset partially by decreases in the venture capital, asset-based, and consumer loan classes.The following table presents the composition of loans and leases held for investment by loan portfolio segment and class, net of deferred fees, as of the dates indicated:Allowance for Credit Losses
The following tables present roll forwards of the allowance for credit losses for the periods indicated:The allowance for credit losses decreased by $8.8 million in the fourth quarter of 2020 to $433.8 million at December 31, 2020. The decrease in the allowance for credit losses during the fourth quarter was attributable to $18.8 million in net charge-offs, offset partially by a $10.0 million provision for credit losses.Net charge-offs were $18.8 million for the fourth quarter of 2020. Gross charge-offs of $20.3 million were reduced by recoveries of $1.5 million. The most significant charge-off was $15.5 million and related to a security monitoring loan.Net charge-offs were $36.1 million for the third quarter of 2020. Gross charge-offs of $37.3 million were reduced by recoveries of $1.2 million. The most significant charge-off was $32.8 million and also related to a security monitoring loan. Security monitoring loans have decreased 47% from $619.3 million as of December 31, 2019 to $329.3 million as of December 31, 2020 since ceasing new originations in the fourth quarter of 2019 while actively reducing the remaining loans. As of December 31, 2020, $250.6 million of these are performing and pass-rated, while $78.7 million are classified, of which $32.5 million are on nonaccrual.For the fourth quarter of 2020 and third quarter of 2020, annualized net charge-offs to average loans and leases were 0.40% and 0.75%, respectively.The allowance for credit losses as a percentage of loans and leases held for investment was 2.27% at December 31, 2020 and 2.33% at September 30, 2020. The allowance for loan and lease losses as a percentage of loans and leases held for investment was 1.82% at December 31, 2020 and September 30, 2020. The allowance for credit losses and allowance for loan and lease losses as a percentage of loans and leases held for investment, excluding PPP loans that are fully guaranteed and do not carry any allowance, were 2.41% and 1.93% at December 31, 2020, respectively, compared to 2.48% and 1.94% at September 30, 2020, respectively.For the full year 2020, gross charge-offs were $93.6 million and included $63.5 million for other commercial loans, of which $59.6 million related to security monitoring loans, $11.8 million for asset-based loans, $10.2 million for commercial real estate loans, and $6.8 million for venture capital loans compared to gross charge-offs for the full year 2019 of $32.3 million that included $12.0 million for asset-based loans, of which $11.8 million related to a single loan, $9.4 million for venture capital loans, and $9.1 million for other commercial loans.For the full year 2020, recoveries were $6.4 million and included $3.6 million for other commercial loans and $1.3 million for venture capital loans compared to recoveries for the full year 2019 of $15.6 million that included $8.2 million for venture capital loans, $4.8 million for other commercial loans, and $1.4 million for asset-based loans.For the full year 2020, net charge-offs to average loans and leases increased to 0.45% from 0.09% for the full year 2019.Deposits and Client Investment FundsThe following table presents the composition of our deposit portfolio as of the dates indicated:At December 31, 2020, core deposits totaled $22.3 billion, or 89% of total deposits, including $9.2 billion of noninterest-bearing demand deposits, or 37% of total deposits. Core deposits increased by $1.1 billion in the fourth quarter driven by continued strong deposit growth from our venture banking clients. For the year ended December 31, 2020, core deposits increased by $6.1 billion and total deposits increased by $5.7 billion.In addition to deposit products, we also offer alternative non-depository cash investment options for select clients; these alternatives include investments managed by Pacific Western Asset Management Inc. (“PWAM”), our registered investment advisor subsidiary, and third-party sweep products. Total off-balance sheet client investment funds at December 31, 2020 were $1.3 billion, of which $1.0 billion was managed by PWAM.CREDIT QUALITYThe following table presents loan and lease credit quality metrics as of the dates indicated:After taking pro-active and decisive steps in the first quarter at the onset of the pandemic to downgrade certain loans, the level of special mention loans and leases, which peaked in the first quarter of 2020, and classified and nonaccrual loans and leases, which peaked in the second quarter of 2020, have declined with the enhanced ongoing monitoring of the loan and lease portfolio during the course of the year. Despite the early actions, enhanced monitoring, and build in the allowance for credit losses, certain credit metrics remain elevated as we continue to manage the credit environment and economic impacts caused by the pandemic.
The following table presents nonaccrual loans and leases and accruing loans and leases past due between 30 and 89 days by loan portfolio segment and class as of the dates indicated:During the fourth quarter of 2020, nonaccrual loans and leases increased by $5.5 million due primarily to an addition of one security monitoring loan for $26.3 million, partially offset by the sale of one security monitoring loan for $12.1 million and the paydown of another security monitoring loan for $5.8 million.CAPITALThe following table presents certain actual capital ratios and ratios excluding PPP loans:ABOUT PACWEST BANCORPPacWest Bancorp (“PacWest”) is a bank holding company with over $29 billion in assets headquartered in Los Angeles, California, with executive offices in Denver, Colorado, with one wholly-owned banking subsidiary, Pacific Western Bank (the “Bank”). The Bank has 70 full-service branches located in California, one branch located in Durham, North Carolina, and one branch located in Denver, Colorado. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed 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 or Pacific Western Bank, visit www.pacwest.com.FORWARD LOOKING STATEMENTSThis communication contains certain forward-looking information about PacWest Bancorp that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about future financial and operational results, expectations, or intentions are forward-looking statements. Such statements are based on information available at the time of the 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. The COVID-19 pandemic is adversely affecting PacWest Bancorp, its employees, customers and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity and prospects is uncertain. The length of the COVID-19 pandemic and the severity of its impact on key macro-economic indicators such as unemployment and GDP may have a material impact on our allowance for credit losses and related provision for credit losses. Continued deterioration in general business and economic conditions could adversely affect PacWest Bancorp’s revenues and the values of its assets, including goodwill, and liabilities, lead to a tightening of credit, and increase stock price volatility. In addition, PacWest Bancorp’s results could be adversely affected by changes in interest rates, sustained high unemployment rates, deterioration in the credit quality of its loan portfolio or in the value of the collateral securing those loans, deterioration in the value of its investment securities, the magnitude of individual loan losses on security monitoring loans, and legal and regulatory developments. Actual results may differ materially from those set forth or implied in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by the Company with the U.S. 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.
GAAP TO NON-GAAP RECONCILIATIONSThis press release contains certain non-GAAP financial disclosures for: (1) PPNR, (2) PPNR return on average assets (3) return on average tangible equity, (4) tangible common equity ratio, and (5) 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, tangible book value per share, and PPNR is prevalent among banking regulators, investors, and analysts. Accordingly, we disclose the non-GAAP measures in addition to the related GAAP measures of: (1) net earnings, (2) return on average assets, (3) return on average equity, (4) equity to assets ratio, and (5) book value per share.The tables below present the reconciliations of these GAAP financial measures to the related non-GAAP financial measures: