PacWest Bancorp

fourth quarter 2022 earnings conference call. With me today are Paul Taylor, our president and CEO, Kevin Thompson, CFO, and Mark Young, our COO and the leader of our venture banking business. Before I hand the call over to Paul, please note that we may make forward-looking statements during today's call to risks, uncertainties, and assumptions. For more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, see our SEC filings, including the 8K filed yesterday afternoon, which is also available on the company's website. I'd like to turn the call over to our President and CEO, Paul Taylor.

Thank you, Bill. Good morning, everyone, and thank you for joining our call today. We've made several significant leadership changes in the fourth quarter that will set the stage for the future. Specifically, I assume the role of President and CEO replacing our longtime CEO, Matt Wagner, who became the Executive Chairman. John Eggemeier has become our lead director, and Kevin Thompson has joined us as our new chief financial officer. We announced a sharpened strategic vision and plan to build on the strengths of the company's deposit-focused community bank business, operating as one team with a mission to maximize shareholder returns by exceeding customer expectations. PacWest has a long history of Acquisitions that brought us great customers and talented employees, but also varied processes and different cultures. Now the time is right to focus on coming together to function even more uniformly and efficiently as one company, regardless of a business line or corporate function. We will simplify and improve our processes to deliver an even higher level of service to our customers and more valuable to our shareholders while meeting or exceeding our regulators' requirements for safety and soundness. This plan is the result of the past six months of work since I joined PacWest, assessing and building a detailed strategic vision and tactical plan to maximize shareholder value. We are operating with a sense of urgency. Specifically, in the fourth quarter, the company made the decision to wind down its operations in premium finance and multifamily lending. In addition, the company is restructuring our subsidiary to realign its operations to improve profitability and reduce risk. These actions will help us refocus our efforts on our core businesses, accelerate our capital growth, and improve operational efficiencies over time. In addition to the strategic decisions above, the company opportunistically sold $1 billion in bonds at a loss in the quarter, which was used to pay down higher cost funding and better position the balance sheet going forward. The management team has also initiated an operational efficiency strategy to control costs reduce processing systems, and define strategies across the company. We see opportunity for growth and earnings through focusing on our core business and customers, and have created a list of financial performance metrics that we believe are achievable and where the bank should perform over time. These include building our CET1 ratio to 10 plus percent, low-cost core deposits equal to 40% or greater, return on assets of 150% or better, efficiency ratio of 45% or less, non-performing asset ratio of less than 50 basis points, and top quartile earnings per share growth. We believe that the actions taken in the fourth quarter are meaningful first steps towards our goals, but It comes at a cost. While our capital goals remain 10% CET1, our actions in the fourth quarter will delay the timing a little. And as such, we would expect our CET1 ratio to hit 9.75% by the end of 2023 and achieve our target of 10% early in 2024. This minor delay enables us to accelerate the balance sheet transformation. There are real challenges ahead with rising interest rates and a slowing economy. But there is a significant opportunity for PacWest to improve our performance and return to shareholders given our strong team, a great customer base, and a plan to unlock additional value for our shareholders and employees. Thank you.

Thanks, Paul. Strategically, the fourth quarter marks the beginning of the next chapter for PacWest. We want to highlight four main points. First and foremost, we announced a clear strategic vision around the community bank with an operational focus on unifying our businesses and eliminating silos to improve performance. Second, we are acting with a real sense of urgency, as you can see in the fourth quarter, with the on-sale and the exiting of two business lines and a significant restructuring of another. Third, we announced an aggressive operating target list to hold ourselves accountable and to set the bar where we believe this company should perform over time. Lastly, we, like the industry, are facing challenges in the current economic environment. We are 100% committed to managing the business through the cycle, preparing for whatever gets thrown at us. And now I'd like to turn things over to Kevin, our CFO, for some specific commentary on the financial results before we go into the Q&A session.