PacWest Bancorp is recommended as a buy. It has a niche focus on commercial lending to small and mid-sized businesses, especially in California. It has a high net interest margin of 5.5% compared to 3-3.5% for other banks. It uses an acquisition strategy to expand, having acquired 27 banks since 2000. Rising interest rates are expected to benefit the bank by allowing it to charge higher rates on loans.
Marketplace Lending Keynote Luxembourg School of Finance Mark Bell
Marketplace lending as rapidly emerged and grown. Is it a new asset class or a technology front end? The Fintech Forum at the University of Luxembourg's School of Finance keynote explores some of the major ideas and these
US Banking Industry Analysis | Valuation and Performance | Aranca Articles an...Aranca
After analyzing the fundamentals and valuations of big banks simultaneously, it can be concluded that US banks have strengthened fundamentally over the last six years. Learn more about US banking industry growth and performance.
Global Trends In Venture Capital 2007 Surveybwatson
“The outlook for the Canadian venture capital industry is bleak given its ecosystem is broken and there is no immediate solution at hand. The Canadian government and the domestic VC community must join forces to bring the industry back from the brink of collapse”
Credit availability in Canada 2014: Targeting an ideal capital structurelbobak
The majority of Canadian financial executives surveyed by the Canadian Financial Executives Research Foundation are more optimistic about their company’s ability to obtain sufficient capital to meet its financing requirements in the next year (whether these needs are short-term, long-term or equity based). Most financial executives surveyed said credit for working capital and growth financing is generally available to their organizations, according to the study, which was published by the research arm of Financial Executives International Canada (FEI Canada), and sponsored by EY. The report, entitled Targeting an ideal capital structure, is based on the results of an online survey of financial executives across Canada, which took place in June 2014. According to the study, even those for whom credit was less available this year, the expectation is availability will improve by the spring of 2015.
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2. Limits to place on non-core funding.
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5. Pros and Cons of these funding sources.
Marketplace Lending Keynote Luxembourg School of Finance Mark Bell
Marketplace lending as rapidly emerged and grown. Is it a new asset class or a technology front end? The Fintech Forum at the University of Luxembourg's School of Finance keynote explores some of the major ideas and these
US Banking Industry Analysis | Valuation and Performance | Aranca Articles an...Aranca
After analyzing the fundamentals and valuations of big banks simultaneously, it can be concluded that US banks have strengthened fundamentally over the last six years. Learn more about US banking industry growth and performance.
Global Trends In Venture Capital 2007 Surveybwatson
“The outlook for the Canadian venture capital industry is bleak given its ecosystem is broken and there is no immediate solution at hand. The Canadian government and the domestic VC community must join forces to bring the industry back from the brink of collapse”
Credit availability in Canada 2014: Targeting an ideal capital structurelbobak
The majority of Canadian financial executives surveyed by the Canadian Financial Executives Research Foundation are more optimistic about their company’s ability to obtain sufficient capital to meet its financing requirements in the next year (whether these needs are short-term, long-term or equity based). Most financial executives surveyed said credit for working capital and growth financing is generally available to their organizations, according to the study, which was published by the research arm of Financial Executives International Canada (FEI Canada), and sponsored by EY. The report, entitled Targeting an ideal capital structure, is based on the results of an online survey of financial executives across Canada, which took place in June 2014. According to the study, even those for whom credit was less available this year, the expectation is availability will improve by the spring of 2015.
Rather than shy away from some of the more efficient non-core funding techniques, we believe it wise to make certain your Board and your Examiners understand what is being accomplished through the use of wholesale funding tactics and our third webinar on the ALCO Process is designed to describe an approach to this issue. We will provide guidance on:
1. Where to describe your strategy.
2. Limits to place on non-core funding.
3. Reporting the use of non-core funding.
4. Non-core funding products and services that are in use today.
5. Pros and Cons of these funding sources.
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Nonprofit Executives and their Boards know they must periodically review reserve or investment policies. They don’t always know, however, what’s involved. Through his work on the Study on Nonprofit Investing (SONI), Dennis Gogarty of Raffa Wealth Management has developed an easy-to-follow investment policy framework which will assist nonprofits in developing or strengthening their organization’s policy and procedures.
Nonprofit Executives and their boards often wonder if their investment policies are lacking. Through his work on the Study on Nonprofit Investing (SONI), Dennis Gogarty of Raffa Wealth Management has developed an easy-to-follow investment policy framework which will assist nonprofits in developing or strengthening their organization’s policy and procedures.
Over 500 responses from a broad sample of senior financial executives across the United States offer an in-depth perspective regarding how CFOs plan to deliver on optimistic expectations for their companies with what they believe are regulatory tailwinds 2017. CFOs will primarily look to leverage two primary channels to deliver growth in 2016: organic growth and increasing customer spend with existing customers. CFOs believe that success in 2017 will be defined in part by: the ability to expand relationships with existing customers, the relative effectiveness of market efforts, operational efficiency, and improvements in engaging and developing new and existing Finance talent.
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Micro, Small and Medium Enterprises (MSME) are the backbone of the Indian economy.. MSMEs are badly affected by Covid-19 lockdown and are facing liquidity issue, delay in payments, risking high default, supply chain disruption and shortage of labour etc. Post pandemic, they need to scale up their sales and business. Therefore, providing the supply of trade finance to MSMEs must be a high priority for all the stakeholder working to stem the economic damage. Export can spur the growth of MSMEs.
Impact of Financial Knowledge of Investors Investment Making Decisionsijtsrd
The objective of the study is to find the impact of financial knowledge of investors on their investment making decisions. Investors are said to rational but due to the human nature, biasness comes into picture while making investment decisions. Financial literacy and financial knowledge are taken as an imperative terms for regulating human nature of investors while making essential investment decisions The study was conducted on 150 investors in the city of PUNE. The data was collected through structured questionnaire and data so obtained was analyzed with the help of SPSS software. Sunil Deshpande | Dr. Sanjay Patankar "Impact of Financial Knowledge of Investors Investment Making Decisions" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-4 , June 2021, URL: https://www.ijtsrd.compapers/ijtsrd42536.pdf Paper URL: https://www.ijtsrd.commanagement/accounting-and-finance/42536/impact-of-financial-knowledge-of-investors-investment-making-decisions/sunil-deshpande
Analysis of the 2007 crisis aftermath shows that financial-services institutions with a clear "way to play" and capabilities to match were better at weathering the storm. Between 2008 and 2014, higher revenue growth correlated with a more focused strategy correlated with higher revenue growth for banks. Banks seeking to thrive in the future should act accordingly.
Open Business Council offers resources, Trade Finance, business advice, SME Finance and a forum and directory for businesses!
http://www.openbusinesscouncil.org/
To grow and prosper in today’s ever-changing world, banks
too must change. They need to move beyond any existing
organizational silos, infrastructure complexities and other
constraints – and toward an operation centered on the client.
Select our content ready Banking Powerpoint Presentation Slides to give an overview of the banking system. The commercial bank PowerPoint complete deck includes ready to use PPT slides such as US banking structure, banking organizational hierarchy, income statement, balance sheet, banking industry overview, key US banking industry statistics, major trends in the US banking industry, leading US banks by revenue, key growth drivers United States banking industry, federal bank regulation in the US, services offered to customers, loan categories, types of loans, headquarters and overseas location, banking SWOT analysis, banking environment PESTEL analysis, porter's five forces model, revenue projections, etc. Furthermore, community banks' overview PPT visuals are completely customizable. You can add or delete content if needed. Showcase latest banking news & trends using professional-looking commercial banks overview PPT visuals. Download this professionally designed financial institution PowerPoint slideshow to give an overview of the US banking industry in a visual manner. Fortify your argument with our Banking Powerpoint Presentation Slides. You will acquire that extra force. https://bit.ly/2WF5pn1
2017-01-25 A Framework for Strengthening Your Nonprofit’s Investment Reserve ...Raffa Learning Community
Nonprofit Executives and their Boards know they must periodically review reserve or investment policies. They don’t always know, however, what’s involved. Through his work on the Study on Nonprofit Investing (SONI), Dennis Gogarty of Raffa Wealth Management has developed an easy-to-follow investment policy framework which will assist nonprofits in developing or strengthening their organization’s policy and procedures.
Nonprofit Executives and their boards often wonder if their investment policies are lacking. Through his work on the Study on Nonprofit Investing (SONI), Dennis Gogarty of Raffa Wealth Management has developed an easy-to-follow investment policy framework which will assist nonprofits in developing or strengthening their organization’s policy and procedures.
Over 500 responses from a broad sample of senior financial executives across the United States offer an in-depth perspective regarding how CFOs plan to deliver on optimistic expectations for their companies with what they believe are regulatory tailwinds 2017. CFOs will primarily look to leverage two primary channels to deliver growth in 2016: organic growth and increasing customer spend with existing customers. CFOs believe that success in 2017 will be defined in part by: the ability to expand relationships with existing customers, the relative effectiveness of market efforts, operational efficiency, and improvements in engaging and developing new and existing Finance talent.
Why MSMEs need extra support for Trade FinanceIsaac Tudu
Micro, Small and Medium Enterprises (MSME) are the backbone of the Indian economy.. MSMEs are badly affected by Covid-19 lockdown and are facing liquidity issue, delay in payments, risking high default, supply chain disruption and shortage of labour etc. Post pandemic, they need to scale up their sales and business. Therefore, providing the supply of trade finance to MSMEs must be a high priority for all the stakeholder working to stem the economic damage. Export can spur the growth of MSMEs.
Impact of Financial Knowledge of Investors Investment Making Decisionsijtsrd
The objective of the study is to find the impact of financial knowledge of investors on their investment making decisions. Investors are said to rational but due to the human nature, biasness comes into picture while making investment decisions. Financial literacy and financial knowledge are taken as an imperative terms for regulating human nature of investors while making essential investment decisions The study was conducted on 150 investors in the city of PUNE. The data was collected through structured questionnaire and data so obtained was analyzed with the help of SPSS software. Sunil Deshpande | Dr. Sanjay Patankar "Impact of Financial Knowledge of Investors Investment Making Decisions" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-4 , June 2021, URL: https://www.ijtsrd.compapers/ijtsrd42536.pdf Paper URL: https://www.ijtsrd.commanagement/accounting-and-finance/42536/impact-of-financial-knowledge-of-investors-investment-making-decisions/sunil-deshpande
Analysis of the 2007 crisis aftermath shows that financial-services institutions with a clear "way to play" and capabilities to match were better at weathering the storm. Between 2008 and 2014, higher revenue growth correlated with a more focused strategy correlated with higher revenue growth for banks. Banks seeking to thrive in the future should act accordingly.
Este fue un proyecto implementando en el Centro Educativo Las Colinas por los estudiantes de 8vo grado con el propósito de mejorar el comportamiento tan violentos de los jóvenes fuera y dentro de la escuela.
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FIQUE LIGADO NOS PRÓXIMOS VÍDEOS DA REVOLUÇÃO RUSSA DE 1917.
Este material apresenta direito autorais e sua cópia é crime.
Não tome este RESUMO como objeto de estudo principal.
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Youtube: https://www.youtube.com/channel/UC-0Hpzim3OvPmjytJ_kHKJQ
Bons estudos!
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1. Stetson University Student Research
This report is published for educational purposes
only by Gonzalo Arroyo-Baudet Industry: Bank
Ticker:PACW Recommendation: Buy
Price: $ 47.14 (as of 11/08/2015) Price Target: $54
Earnings/Share Mar. Jun. Sep. Dec. Year P/E
Ratio2012 $0.14 $0.42 $0.43 $0.54 $1.54 12.52
2013 0.37 0.11 0.53 0.06 1.08 27.29
2014 0.55 0.10 0.60 0.69 2.55 16.94
2015E* 0.71 0.83 0.76 0.71 2.97 15.73
2016E 0.64 0.74 0.74 1.05 3.74 15.07
*Bolded/italicized figures are team estimates
Highlights
Net Interest Rate Spread: The primary interest‑earning assets are loans and investment
securities, and the primary interest‑bearing liabilities are deposits. A high yield in interest
earnings and a competitive cost of deposits contribute to the high net interest margin. While an
average bank has a 3-3.5% on net interest margins, Pacwest achieves quarter after quarter a
5.5%.This is a key determinant of a financial institution's profitability.
Niche Lending Focus: They have a good market position in key business segments, including its
national commercial lending platform to middle-market companies. They lend money to small and
mid-business that need adventure capital. In California there are thousands of new companies with
a lot of potential that need financial help to continue their growth. Pacwest is committed to the
entrepreneurial and venture communities; they offer their clients a wide array of products, giving
them assistance through all stages of their growth. Even though this kind of lending is more risky
than lending to individuals, the default risk has been decreasing. It is as of right now less than 1%
while the Industry is 2%.
Regional Banks in Takeover: With Pacwest being a regional bank, and having established
access to the California market, any large bank looking to operate on the west coast will consider
acquiring Pacwest. Pacwest as of right now has 1.1% of the market share of California with 82
offices. Along with the number of offices and market share Pacwest owns, they have a P/B of 1.23
making them relatively inexpensive compared to the industry average of regional banks who’s
P/B is 1.5. On the other hand Pacwest Bancorp has purchased 27 financial institutions since 2000.
Their corporate strategy is to continuously acquire other financial institutions which help them
expand in the core fields.
Attractive Valuation Indicates a BUY: With interest rates expecting to rise in 2015, Pacwest is
positioned nicely for a strong return. PACW will benefit from good loan growth and growth in
several fee areas. The valuations indicate an average fair value price of $54 and an undervaluation
of 15% which makes them an attractive buy.
Source: Thompson Baseline
Date: 11/15/2015
Source: Yahoo! Finance
2. 11/15/15
Gonzalo Arroyo-Baudet
Stetson University Student Research
2
Exhibit 1: The Company
Exhibit 3: Allowance For Loan Losses
Exhibit 4: Venture Capital Investment
Top 5 States
Business Description
Company: PacWest Bancorp is a regional bank that operates through two segments; Pacific Western Bank
which include lending and deposit gathering activities and Capital Source which provides small and middle-
market businesses loans and leases; it is focused on capital adventure. Pacific Western Bank has 80 offices
mainly in southern California and San Francisco. Pacific Western also provides working capital financing to
growing companies located throughout the Southwest, in states like Arizona or Texas. Capital Source and
Square 1 Bank divisions have offices across United States in cities like Maryland, Denver, Chicago, New
York and Midvale (Utah). With its strong presence in California, PacWest Bancorp has become 14th largest
commercial bank in U.S.
Investment Rationale
Pacwest Bancorp. is being recommended as a Buy for the following reasons.
Regional Banks in Takeovers: With Pacwest being a regional bank, and having established access to the
California market, any large bank looking to operate on the west coast will consider acquiring Pacwest.
Pacwest as of right now has 1.1% of the market share of California with 82 offices. Along with the number
of offices and market share Pacwest owns, they have a P/E of 15 making them relatively inexpensive
compared to the industry average of regional banks who’s P/E is 19. On the other hand Pacwest Bancorp
has purchased 27 financial institutions since 2000. Their corporate strategy is to continuously acquire other
financial institutions which help them expand in the core fields.
Barriers of Entry: The banking industry is really hard to enter in. Some barriers to entry in financial
services markets include licensure laws, capital requirements, access to financing, regulatory compliance
and security concerns. Between banks there are so many regulations, and in many cases, the costs of
compliance and threat of litigation are sufficient to deter firms from entering the market. Another barrier
would be the capital requirement; high fixed costs and large sunk costs in the development of financial
services make it difficult for new companies to compete with large firms that have scale efficiencies. In the
bank industry, you need to be big (have a large amount of clients) to be profitable.
Innovative/Niche market: Pacwest has abnormal net interest rate spreads. While banks usually have a
spread of 3 to 3.5%, Pacwest achieves every year over 5.5%. This is because their loans and leases are
focused on commercial loans. They have a large commercial lending platform to middle-market companies.
New startups that need to borrow money to develop their business are willing to pay a higher interest rate to
get capital. Pacwest is committed to the entrepreneurial and venture communities; they offer their clients a
wide array of products, giving them assistance through all stages of their growth. Other banks focus more on
consumers or on house mortgages and that is why their spreads are lower than Pacwest. This niche market is
expanded upon due to the majority of start-up companies being based out of California. Even though this
kind of lending is more risky than lending to individuals, the default risk has been decreasing. It is as of
right now less than 1% while the Industry is 2%.
Revenue Breakdown: Through its diversification in the financial industry, Pacwest produces revenue from
different segments, Interest Income and Noninterest Income. (% of all revenue):
Interest Income (92%)
Net Interest Income (91%): Real Estate Mortgage (47%), Real Estate Construction and Loan (3%),
Commercial Loans (50%), Consumer Loan (1%)
Investment (8%): Municipal Securities (46%), Government Agency enterprise pass through securities
(25%), Government Agency enterprise collateralized mortgages obligations (16%)
Interest Earnings Assets (1%): These are deposits in financial institutions, mostly cash held at the
Federal Reserve Bank of San Francisco.
Non-Interest Income (8%): It includes service charges on deposits accounts, commissions and fees, leased
equipment income and dividends realized on equity investment.
The collateral for real estate loan includes healthcare properties (9%), office properties (20%), multifamily
properties (7%), hospitality properties (5%) and retail properties (3%). Commercial loan products, available
Exhibit 5: Revenue Breakdown
Source: Yahoo! Finance
Source: Bloomberg
Source: 10-Q
0%
20%
40%
60%
80%
100%
Real Estate Mortgage
Commercial
Investment
Non-Interest
0.0%
2.0%
4.0%
10 11 12 13 14 15
PACWEST (<1%)
Industry (2%)
Source: Bloomberg
3. 11/15/15
Gonzalo Arroyo-Baudet
Stetson University Student Research
3
Exhibit 6: Profit Margin
Exhibit 5: Quarterly Segment Revenue
Breakdown
Exhibit 6: Assets Growth %
on a nationwide basis, include equipment loans and leases (8%), asset based loans (15%), loans for financial
companies (3%) and loans secured by borrower future cash flows (22%).
As a result of the CapitalSource Inc. merger in 2014, Pacific Western Bank established the CapitalSource
Division, which we also refer to as the National Lending segment (72%). The other segment is called
Community Banking (28%); it includes the operations of Pacific Western Bank, excluding Capital Source
Division, and it includes lending and deposit gathering activities. The CapitalSource Division lends
throughout the United States, providing middle-market businesses asset-secured loans, equipment-secured
loans and leases, cash flow loans, and real estate loans secured by various property types. The Bank's
leasing operation, Pacific Western Equipment Finance, and its group specializing in asset-based lending,
CapitalSource Business Finance Group, are part of the CapitalSource Division. The CapitalSource
Division’s loan and lease origination efforts are conducted through key offices located in Chevy Chase,
Maryland; Los Angeles and San Jose, California; St. Louis, Missouri; Denver, Colorado; Chicago, Illinois;
New York, New York; and Midvale, Utah.
Pacwest revenue breakdown for their segments have been stable even they have been acquiring other
financial institutions in the last years. Revenue comes from interest income and noninterest income.
Historically, they always have strong net interest margins due to high average loan and lease balances.
Growth Strategies: Pacwest has four main growth strategies:
Niche Lending Focus: They have a good market position in key business segments, including its
national commercial lending platform to middle-market companies. They lend money to small and
mid-business that need adventure capital. In California there are thousands of new companies with
a lot of potential that need financial help to continue their growth. Pacwest is committed to the
entrepreneurial and venture communities; they offer their clients a wide array of products, giving
them assistance through all stages of their growth. Even though this kind of lending is more risky
than lending to individuals, the default risk has been decreasing. They do a really good job in
selecting their commercial lending customers.
Acquisition strategies: Pacwest specializes in acquiring banks. They have completed 27
acquisitions since 2000, including the last purchase of “Square 1 Financial” 1 week ago. This will
help them to improve its funding profile by reducing the firm's reliance on higher-cost CDs and
diversifies the loan portfolio into complementary businesses and contributes additional sources of
fee income. Last year’s purchase of CapitalSource Bank made Pacwest Bancorp grow mainly
nationwide with a full spectrum of middle-market lending.
Net Interests Rate Spread: The primary interest‑earning assets are loans and investment
securities, and the primary interest‑bearing liabilities are deposits. A high yield in interest
earnings and a competitive cost of deposits contribute to the high net interest margin. While an
average bank has a 3-3.5% on net interest margins, Pacwest achieves quarter after quarter a
5.5%.This is a key determinant of a financial institution's profitability.
Core Deposit Growth: While the deposit balances will fluctuate depending on deposit holders’
perceptions of alternative yields available in the market, Pacwest seeks to minimize these
variances by attracting a high percentage of noninterest‑bearing deposits. As an industrial loan
bank, the former CSB (2014 acquisition) funded its balance sheet with a large proportion of
higher-cost time deposits and as a result of the CapitalSource Inc. merger, they added $5.3 billion
of time deposits. The goal is to continue replacing these higher-costing time deposits with core
deposits through a dedicated deposit transformation initiative that includes sourcing deposits from
CapitalSource Division borrowers. As of June 30, 2015, total deposits obtained from
CapitalSource Division borrowers totaled $455.5 million, of which $441.8 million were core
deposits.
Competitors: Pacwest is a regional bank based in California that is increasing their operation nationwide.
Thus, it most comparable competitors are City National Bank and East West Bank, which are based in
California and are also focused on services to small to mid-sized businesses. Another competitor is Western
Alliance Bank that offers different financial services in Arizona, Nevada and California. Of course, Pacwest
also has other well-known large competitors, like Bank of America, Wells Fargo and JP Morgan. However,
these popular federal banks are too big to be compared with any regional Bank.
Source: Bloomberg
Source: Bloomberg
Source: Reuters
-10%
0%
10%
20%
30%
10 11 12 13 14 Current
CATY
PACW
4. 11/15/15
Gonzalo Arroyo-Baudet
Stetson University Student Research
4
Exhibit 8: Interest Rate
Exhibit 9: Competitive Analysis
Exhibit 7: Domestic Deposit Market
Share
Source: Bloomberg
Source: Reuters
Source: Bloomberg
Industry and Peer Group Overview
Companies in the regional banking industry provide services such as commercial banking, asset
management, mortgages and loans. Banking companies are more and more putting more emphasis on their
focus on the rapidly changing customer expectations. Also, population growth will increase the relative
numbers of both the oldest and youngest customer segments, which creates challenges for banking
companies. Older customers are normally more loyal, whereas the youthful customers are more likely to
bounce around and are technologically savvy. Banking customers are also becoming more hands on and can
bank at the freedom of their cell phone. So banks like Pacwest who have strong online banking and also
enough advisors to satisfy customers that like to come in, they are positioned greatly.
Under the Riegle-Neal Act of 1994, which most importantly empowered nationally chartered lenders to
operate across state lines, regulators can only approve mergers or acquisitions if the combined
companies' deposits don't exceed 10% of total deposits nationwide. This is a problem for banks like
JPMorgan Chase, Bank of America, and Wells Fargo, all of which have already passed the 10%
threshold. These banks hold 11.1%, 11.3%, and 10.5%, respectively, of total domestic deposits.
This gives smaller banks, like regional, more power to merge with other smaller banks because they
will never reach the 10% threshold.
Rising Interest Rates: The anticipation of rising interest rates is hanging most on the banking and financial
industries. A rising rate environment bodes well for the banking sector. I believe that bank stocks can
continue to outperform in anticipation of a shift in the trajectory of rates. With interest rates higher, banks,
especially regional banks that do a lot of loan origination, should be able to charge more for their products.
They should also be able to pay more interest to their depositors, giving higher incentive to savers. There are
three scenarios for the interest rates and what will happen to the banks when they decide move. Overall, the
banking and financial industries are poised for success looking forward.
Interest Rate Scenarios: Like I said above, a rising interest rate environment bodes well for the baking
sector. There are a couple of different rate scenarios that need to be analyzed for bank stocks. The best
scenario for banks is higher short rates because 71% of the loans are priced off the front end of the curve.
This needs to happen for net interest margins to expand, because banks need short rates to go up more than
long rates. The second scenario is when the long-term rates rise more than the short-term rates. This
scenario would benefit the banking industry, but it wouldn’t bode as well as the first scenario. The worst
scenario for the banking industry would be if rates were to remain low for longer leaving the industry with
few levers to pull to drive earnings.
Competitive Positioning
Pacwest’s business model is relationship focused. They focus on customer acquisition and finding
customers that they can build relationships with. The main strategy of the company is to build up strong
customer relationships while obeying underwriting standards to grow the low-cost deposit base and provide
the high-quality loans, which will help the company achieve the long-term growth and profitability.
Meanwhile, the acquisition is considered as a consistent business strategy of company. The company has
successfully acquired 27 banks since 2000 for increasing its presence in California and earning assets.
The regional banks are attached to the banks group and provide financial services to clients such as loans
and commercial services. The regional banks majorly generate their revenues by providing high quality
loans services and growing the low-cost depository services from the customers in order to increase earning
spreads. The competition in the regional bank sub-industry is highly intensive considering the 4810 players
in the regional-bank market and high presence of national banks as well as international banks. The major
players under the banks group that have high presences in the California are Bank of America (BAC), US
Bancorp (USB), Wells Fargo& Company (WFC), Citigroup (C), City National Corporation (CYN) and
CVB Financial Corp (CVBF) (Exhibit 9).
Regional Focused: The PacWest Bancorp operates their banking business in California area containing 80
full-service communities banking branches. Therefore, Pacific Western Bank is able to provide relatively
high personalized banking services and develop loyal local customers. Also, region-focused banks are
unlikely affected as much as large banks by the fluctuation of foreign currency. The dollar value keeps
going up; many large banks’ foreign asset was shrinking and reduced their net income. However, Pacific
Western Bank only focuses on domestic market, so its operation will take less effect from the increasing
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Exhibit 10: Net Interest Rate Spread
Exhibit 12: Inflation Rate vs. Banking
Industry Revenue Growth
Source: Reuters
Source: Bloomberg
dollar value. In addition, due to their low (1%) investment in the Oil and Gas industry, they have not been
adversely affected.
Target small and mid-sized Business: Pacific Western Bank provides commercial banking services mainly
to small and mid-sized businesses. Those start-up businesses have limited loan options from Bank of
America and Wells Fargo & CO, because start-ups cannot meet usually large national banks’ high
requirements. However, Pacific Western Bank is willing to offer loans and financial solutions to those set-
up companies and charge higher fees or interest rates to achieve a higher market return. That is why their net
interest rate spread is 5.5% while other banks have a lower rate of around 3%. In addition, Pacific Western
Bank offers unique banking tools to meet customer needs such as credit reports and Intuit Turbo Tax. The
unique banking tool is very attractive to small, medium companies, as in general those small companies
cannot afford such services from professional consulting companies, and allows clients to file and send
taxes online.
Strong Presence in the Local Area: As PacWest Bancorp goes forward with its acquisition strategy, its top
two core business segments are banking and asset financing. Though banking is the largest revenue source
of PacWest Bancorp, asset financing is growing faster than banking in terms of both total assets and
revenue. Along with the merger and acquisition process, PacWest Bancorp became more resource efficiency
and integrity in the banking system, for example compare with 2012, the company overall efficiency
increased by 3 percent. Also, a wide financing segment provides comprehensive customer services. Its
premium banking services and strong presence distinguish themselves from other community banks in
California.
I believe any factor that has a big impact on the whole economy can be a key variable driving the stock
market and financials sector because financial entities are involved in every industry and individuals. There
are four major macroeconomic indicators that will influence the future performance on financial sector.
They are Interest Rates, M2 (Money Supply), inflation, and Real GDP.
Interest Rates: It is an important benchmark of how the economy is doing. It is an effective tool for The
Federal Reserve to keep inflation under control and maintain the economic health of the United States.
Since the daily operations of financial services, especially banks are tied to interest rates, and the interest
rate environment mainly determines the profitability of a financial stock. The effective Federal Funds rate is
one of the key economic variables that have a major impact on the financial sector of stock market. The
following graph shows the historical trend of the Effective Federal Fund Rate from 1954 to 2015 (Exhibit
11). During the financial Crisis of Dec. 2007-2008, the rate decreased dramatically from 5.26%-0.16%. We
are currently at the historical low rate level around 0-0.25%. The FOMC has maintained it that low to fight
the Great Recession of 2008-09 and stimulate the U.S. economy.
Following this trend, the class expects the effective Federal Funds Rate to increase by 1 to 1.25% during the
next 12-18 months. We expect the 10 Year Treasury to be between 2.75 and 3.25% at the end of 2016. The
long-term forecast of interest rate is really dependent on employment rate and inflation rate in the future.
We predict the unemployment will decrease with strong job gains and inflation will increase in a low speed,
which indicates a strengthening economy. We believe that the stronger the economy, the greater the growth
of financial sectors because of the rising demand of capital.
Inflation: As the inflation rate increases, the lending by banks, the quantity of bank assets and the volume
of liabilities issued by banks decrease; the stock return volatility increase. It is very important for financial
institutions to take a deep look at the inflation rate because it has profound influences on its activities. The
following graph shows the inflation rates from year 2005 to year 2015. In recent months, the inflation rates
are at the lowest level since late 2009 and on January and March 2015, there were even deflation of -1
percent due to low energy cost and decline food index. The class expects inflation rate to increase 1.5% in
the next 12-18 months. The Fed sets the objectives of maximum employment and 2 percent inflation. To
support continued progress toward maximum employment and price stability, the Fed will gradually
increase interest rates until the inflation rate gradually reaches to 2 percent.
GDP: Real GDP inflects the health of financial market. Increasing real GDP leads to less default on loans
and debts. Thus, shareholders are more confident on their investment decisions and are willing to invest
more or expand. The following graph shows the historical real GDP growth rate in recent 10 years. We can
see a steeply drop during the 2008 economic crisis, and a strong increase since 2009, since the real GDP
index is strongly correlated with economic development. Following this trend, the class expects that the
Real GDP Growth will increase between 2.5 and 3% in the next 12-18 months. Consumers are energized by
the availability of more jobs and by lower energy prices, which are putting more money into their pockets to
shell out for other goods and services. When consumers spending increases, more and more businesses will
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Exhibit 10: Revenue Growth Rate
Exhibit 15: Geographical Location
Source: Pacwest Bancorp Website
Exhibit 13: GDP Growth vs. PACW
Stock Return
Source: Bloomberg
Source: Bloomberg
increase investment in new production capacity and the Real GDP will continually increase. The current
steady increase of Real GDP lays a solid foundation and healthy environment for the financial industry and
people have more money to spend, save and invest.
Market Share
Total Domestic Deposit Market Share: As of 2014, three banks accounted for 30% of the entire market
share in terms of total domestic deposits. Bank America controlled 10.9% of the market share with $1.019
trillion total deposits. Wells Fargo was second with $924.1 billion in total deposits accounting for 9.90% of
the market share. And the last biggest company is JPMorgan, which accounted for 9.8% of the market share
with $916.5 billion in total deposits.
Regarding Pacwest, it is the 84th
largest depositary organization in the United States; it has consolidated
assets of approximately $16.7 billion.
Regional Deposit Market Share: PacWest controls PWB, which operates branches only in California.
PWB is the 14th largest insured depository institution in California, controlling approximately $12.0 billion
in deposits, which represent 1.1 percent of the total deposits of insured depository institutions in California.
With the acquisition of Square 1, it approximately added $2.4 billion in deposits. This takeover took place 1
week ago so PacWest has become the 76th largest depository organization in the United States, with $14.4
billion in deposits, which represent less than 1 percent of the total amount of deposits of insured depository
institutions in the United States.
I think with this acquisition and some time, call it 24 months, that PACW becomes a front runner for a
Wells Fargo & Co. (NYSE:WFC) acquisition. Wells Fargo is headquartered in California, could make great
sense of buying PACW's huge California location exposure, consolidating the branches, and realizing an
ungodly amount of synergies. The SQBK division could feed nicely up to Wells' IB or asset management
segments, etc. This is really more a subject for an article a bit later in development, but just know that the
table is being set for this to happen. It just makes too much sense.
Same Store Revenue
Organic Growth: Same store sales are often used as a measure of organic growth. For the last five
years, the average annual revenue growth for the Peer Group was -1%. In contrast, PacWest’s revenue
growth has outpaced the Regional Banks Industry by 7%; the 5 year revenue growth rate is 6%. I am
expecting a steady organic growth of 2 to 3% per quarter in the next 12-18 months.
Geographical Growth: Pacwest is the 11th
biggest bank in terms of market share in the Southwest region.
With the corporate strategy of acquisition, 27 financial companies since 2000, PacWest has been able to
expand to other states like Arizona and Texas. Its last purchase of Square 1 Financials made them also be
the 8th
largest bank in North Carolina. We shouldn’t be surprised by any new acquisition plan announced in
later years. They will definitely become bigger and expand into more states.
Branding Strategy: PacWest is known for supporting startups and providing them with financial services,
at a lower cost, to help them for example fill out their taxes. They also provide with loans to small and mid-
companies that are not able to get a loan from bigger banks. PacWest tries to work out a plan with these
companies to help them finance their business activities. The Pacwest Bancorp distinguishes themselves
from other banks by providing extremely high level customer services and maintaining the competitive
interest rate charged on loans.
Financial Analysis
Acquisition Contributing to Topline Growth: Pacwest Bancorp has successfully acquired 27 banks since
2000. With the continuing expansion of the company, they had a progressive increase in its assets and net
income. Last year they spent 2,237 million dollars in the takeover of CapitalSource which made them
increase by 122%. At the beginning of October they consolidated another acquisition, Square 1 Financial,
for 702 million dollars. Acquisitions since 2008 are worth $3.5 billion and each takeover has add on average
30% income to the total revenue.
Average Rev. Growth
PACW: 6% Industry:-1%
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Exhibit 16: Core Deposits as Percentage of
Total Deposits
Source: Company 10-Qs
Increase of Core Deposits to Margins Expansion: Pacwest counts on core deposits as a stable source of
funds for their lending base. Core deposits offer many advantages to the bank, such as predictable costs and
a measurement of the degree of customer loyalty. In addition to the advantages mentioned above, core
deposits are less vulnerable to changes in short-term interest rates than CDs or money market accounts.
Core deposits are an important focus for Pacwest in the next year. With the completion of the Square 1
merger, PacWest has a substantially improved core deposit base and a proven platform for generating
profitable loan, deposit and noninterest income growth in the venture capital banking space. Core Deposits
Increased $230.6 Million in the Quarter and Represent 56% of Total Deposits. Net Interest Margin was this
last quarter 5.19%.
The interest rate environment is going to play an important role in how Pacwest grows. By analyzing
Pacwest’s three main segments, I found different growth rates accordingly.
Historically, Wells Fargo’s revenue breakdowns for their operating segments have been stable. The majority
of their revenue, Interest Revenue, has a fairly steady rate of about 90 to 92% (Exhibit 17). This revenue
comes from a higher than industry average net interest margin which has been averaging 5.6% for the last
five quarters while the industry has 3%.
Revenue: Pacwest’s revenues dropped in the last quarter to 208 million dollars; there was a 6% decrease
compared to Q2. Noninterest income decreased by $3.8 million (almost 20%) to $15.8 million for the third
quarter of 2015 compared to $19.6 million for the second quarter of 2015 due mostly to lower realized gains
and dividends on equity investments and lower income recognized as a result of loan and lease
prepayments. Net interest income decreased $10.1 million (6%) to $192.5 million for the third quarter of
2015 compared to $202.6 million for the second quarter of 2015 due to lower discount accretion on acquired
loans and lower FHLB dividends.
However, future quarters look promising in terms of revenue due to the acquisition of Square 1 Financials.
This growth along with the upcoming interest rate increases show that Pacwest is in a great position to keep
increasing their revenues and beat there 2015 numbers in 2016. In the last 5 years they have an average
revenue growth of 6%. They have continued to improve their quality of assets and have decreased their
nonperforming assets. Their net charge offs have stayed pretty stable which is a good indication considering
they have more exposure because of their increased accounts, deposits, and loans. With interest rates
expected to rise, Pacwest is in great position to continue to increase its profit margins by steadily increasing
its revenues and decreasing its costs. Pacwest makes their revenue mostly from Real Estate Mortgage
(47%), Real Estate Construction and Loan (3%), Commercial Loans (50%), Consumer Loan (1%) . Of
course it has also been profiting off of the rising real estate market through their increase in mortgage loans
and hopefully this sector will continue to grow and continue to increase their revenue as a result.
The main factor that is going to increase revenue in the last quarter of 2015 is the takeover of a Bank from
North Carolina. According to my pro forma, I expect revenue to increase by 22% in Q4 2015. As a banking
holding company, its growth of revenue is driven by its growth of assets. I decomposed the revenue into 2
parts: interest revenue and non-interest revenue. Interest revenue is driven by the interest-bearing assets
such as loans. Once I figured out the average interest income rate on each of interest-bearing assets, I could
combine my estimates on key economic variables and make a reasonable assumption. Using the estimated
interest income rate, I multiplied the corresponding driven asset; and I got the revenue earned from that
asset in the specific year.
Gross Profit: Pacwest has been working hard to be the most efficient and they had great results in the last
year. Their gross profit increased from averaging 30% in the past years to averaging 50% in the last 5
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Exhibit 18: Gross Profit %
Source: Reuters
quarters. PACW has two main categories they separate their revenues into: net interest income and
noninterest income. Net interest income accounts for 92% of the revenue and noninterest income accounts
for 8%. Net interest income is driven by growth in earning assets, and PCI accretion. Some different
services that drive the net interest income are short-term investments and fed funds, mortgages and loan
sales and investment securities. The greatest drive will be the earning assets for next quarter due to the
acquisition. Noninterest income, on the other hand, is a combination of many different categories. Their
greatest driver is service charges on deposit accounts and commissions fees. By increasing their customer
growth, this will eventually lead to higher gross profits. PACW pays high advisory and commission fees
because of their business strategy. They want to be very personal and by doing this have a high supply of
advisors. PacWest is better positioned with increasing interest rates to increase their profit margin in the
next coming years.
Organic Growth vs. Acquisition Growth
My valuation models are based on the estimated organic growth only unless there is a verified acquisition plan
in the future. For example, On March 2015, Pacwest announced its acquisition of Square 1 Financial, Inc,
which was completed October 8th
. I indicated this acquisition on my estimated Quarter 4 of 2015 Pro Forma
revenue and expenses. It will improve PACW's funding profile by reducing the firm's reliance on higher-cost
CDs and diversifies the loan portfolio into complementary businesses and contributes additional sources of fee
income. Other than that, I just used the estimated organic growth from my analysis of the whole economy,
industry, and the company performance in next years. I was pretty conservative; did not take account of any
unpredictable future acquisition plans in my valuation. Organic loan growth of 14% is high relative to peer
averages of between 8% and 10%. This means, Pacwest is in a pretty good situation considering the main
feature that makes a bank gain money, loans.
Margin Expansions
Profit Margin Improvement: Pacwest’s profit margins are fairly cyclical and they also correlate
with interest rates. Pacwest’s profit margins have steadily increased since the financial collapse and
all 27 acquisitions since 2000 helped has helped their margins by increasing their economy of scale.
Profit Margin: Pacwest has the highest profit margins among the big four banks in the United
States. Its profit margin has been steady at around 30-33%% in the last 5 quarters, yet with interest
rates about to rise I believe this will only increase this margin. I believe this because there is a strong
correlation between interest rates and Pacwest’s profit margin. This is expected because higher
interest rates allow Pacwest to increase their net interest margins which increases their revenues at no
cost to the company. PACW has a profit margin exceeding its competitors (the industry average is
right now at 19%); it shows that they are more profitable company and that they have better control
over its cost compared to its competitors.
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Exhibit 19: Return on Equity
Exhibit 20: Book Value of Equity
Growth
Source: Reuters
Source: Reuters
Earnings
PACW’s earnings grew a lot since they bought Capital1 5 quarters ago. Its EPS growth in the last
year was 121%. This shows how much they grow when they acquire other companies. As I said
before, they just acquired Capital Source which will make Earnings continue to grow. This growth is
also due to the stronger economic environment and the soon to be rising interest rates. Despite the
low interest rate environment, revenue and pre-tax pre-provision profit increased year over year, and
they continued to operate within their target ranges for ROA, ROE, and efficiency ratio. Looking
forward, the company and my calculations expect the company to continue to grow in areas such as
commercial real estate, international commercial loans, investment banking and credit card and
thrive in 2016
Pro Forma: For my pro forma analysis of WFC, I found that they should expect to see an increase in
revenues and net profit the last quarter of 2015 due to the acquisition of Square Financial 1. For 2016 I
expect them to have organic growth. Thus, I analyzed their segmented revenues and ran regression
analysis on these segmented revenue trends with economic factors like GDP, inflation rates, and
change in interest rates. Through these regressions I found that Pacwest’s main segment, which is
interest income from commercial lending, correlates with interest rates and change in interest rates.
Using these correlations along with their historical growth rates and information gained from their
quarterly and annual statements I projected Pacwest’s income statement until 2017. With these factors
I expect that we will see revenues increase to $254.5 million in Quarter 4 of 2015 and net income to
increase to $85.5 million. I expect earnings per share to increase to $0.71.Apart from the acquisition,
most of this economic growth is the result of a stronger economic outlook for 2016 and the highly
probable increases in interest rates.
Return on Equity
Pacwest return on equity was 9.81 percent in 2015. This 9.81 percent is the profit expressed as a
percentage of its shareholder value. It has a much higher ROE than the industry average of 8.25
percent. It is clear that Pacwest’s positive ROE is a result of their high net income and sales as well as
the industries. Also, Pacwest’s efficiency ratio was 40.6 percent, which means their inventory turnover
is strong as well.
Cash Flow
Free Cash Flow: A more pertinent way to measure the company’s cash flow is their free cash flow.
This is how much operating cash flow remains after capital expenditures. This last querter Pacwest
had a free cash flow of $150 million. This is good considering they acquired Wachovia in 2014, which
used some of their free cash flow. Yet this measurement saw a lot of volatility due to the constant
takeovers of financial institutions.
Debt
Debt to Equity: Currently, Pacwest has long term debt of $987.9 million compared to CATY’s long
term debt of $1014 million. Pacwest debt to equity ratio is 27.58, which is lower than the regional
bank’s industry which is 80.25. This is a good sign showing that they are more selective with their
debt contracts and value their equity higher. PACW is also better of regarding the debt to assets ratio;
it is 5.88 while the industry has 9.5.
Total Debt to EBITDA: More importantly, it is crucial to compare WFC’s debt-to-EBTIDA ratio
because is displays the amount of time for each company to pay off their debt. Currently WFC’s ratio
is 6.34, compared to JPM’s ratio of 25.66. The debt to EBITDA ratio suggests that WFC has a better
likelihood of paying off their debts thereby reducing the default risk for investors.
Valuations
In this section, we estimate the fair values of Pacwest’s stock. It should be noted that all input data
were derived from historical company data and pro forma estimates.
Price to Book Valuation Model: The Price to Book Ratio formula, sometimes referred to as the
market to book ratio, is used to compare a company's net assets available to common shareholders
relative to the sale price of its stock. The calculated fair value is $51, which is an undervaluation of
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9%.
Residual Income Model: This model values securities using the company’s current book value per
share and the present value of expected future residual income. The calculations can be seen in the
Appendix 3. Using the estimated BPS growth rate of 7.95% for the next year, the model shows that the
fair value price per share is $57.5, making this security undervalued by 22%. This model values
securities using a combination of a company’s current book value per share and the present value of
expected future residual income.
Average Fair Value: Pacwest is currently trading at $47, and based on the average fair value from the
valuations results in an average fair value price of $54, meaning they are undervalued by 15%.
Investment Risk
Financial Institutions: Pacwest’s business and earnings are sensitive to economic and general
business conditions. Upside and downside risks that can affect my price target on Pacwest include
sustainability of pre-provision profit, ability to continue to grow revenues, higher than expected credit
losses, sharper volatility in markets related revenues, and political/regulatory changes impacting
consumer banking and mortgage business. As a financial institution, Pacwest will be forced to hold
substantially more capital than other companies, which could depress returns. They could use that
capital for other investments.
Risky Takeovers: While acquisitions are usually positive for the buying company, it is really risky.
Pacwest has acquired 27 financial institutions since 2000, they average more than 1 acquisition per
year. This makes Pacwest be riskier due to the great amount of money they invest in other companies.
Macroeconomic Environment: The macroeconomic environment is also a risk that we must take into
account. The macroeconomic environment could increase the credit risks. Credit risks are influenced
by the macroeconomic environment, the higher the anticipated credit risk, the higher the rate of
interest that investors will demand for lending their capital. Also, an extended period of deleveraging
combined with low interest rates could dramatically reduce profitability.
Interest Margins: Interest margins are anticipated to keep decreasing until the Federal Reserve raises
interest rates. This is a risk because if interest rates do not rise within the next few quarters then
Pacwest will see lower revenue and profit margin growth than I have predicted. However, I really
think interests will rise in the next quarters.
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Table of Contents
Appendix 1: Income Statement 12
Appendix 2: Balance Sheet 13
Appendix 3: Statement of Cash Flow 14
Appendix 4: Pro Forma Income Statement 15
Appendix 5: Pro Forma Balance Sheet 16
Appendix 6: Price to Book Value Valuation Model 17
Appendix 7: Residual Income Valuation Model
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Appendix 5: Price to Book Valuation Model
Source: Thomson Reuters and Personal Estimates
Appendix 6: Residual Income Valuation Model
Fair Value: $57.5
Undervalued by 21%
Source: Thomson Reuters and Personal Estimates
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Sources:
Baseline
Bloomberg
Reuters
UNECE
CNBC
Morningstar
Yahoo Finance
Business Insider
Pacwest 10-Q
Pacwest 10-K
Pacwest Announcements
Pacwest Transcripts
Pacwest Conference Calls
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might
bias the content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s)
to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The
information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute
investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a
recommendation by any individual affiliated with CFA Society of Orlando, CFA Institute or the CFA Institute Research Challenge with
regard to this company’s stock.