PacWest Bancorp reported a mixed bag for shareholders in its final earnings report on Oct. 24. Its merger with Banc of California Inc. is expected to close at the end of this month.
L.A.’s third-largest bank disclosed a net loss of $33.3 million in the third quarter, which despite the negative slide showed some recovery from its steep $207 million loss in the preceding quarter.
PacWest’s third-quarter revenue was nearly $175 million, a 53% year-over-year decline, while Banc of California’s revenue was up 52% over the same year period, reporting a third-quarter revenue of $120 million.
A week before both of these earnings report Federal Reserve System’s Board of Governors approved the companies’ merger, marking the final regulatory stamp of approval after the California Department of Financial Protection and Innovation gave the combined entity the green light earlier.
PacWest’s health spiraled sharply after its uninsured deposits and unrealized losses in its bond portfolio spooked investors wary of regional banks catering to similar clientele as First Republic.
Additionally, the slump in the property market added to PacWest’s woes, since a large portion of its loans were in California homes. Escalating mortgage rates heightened credit risk for lenders with the potential for more loan defaults.
The bank has been selling off billions of its loan portfolio in the past months to shore up investor confidence, but an internal solution was deemed implausible, and the bank agreed to a merger with Banc of California in July.
PacWest announced additional liquidity efforts in its third-quarter earnings, including an uptake of $1.4 billion in brokered deposits. Unlike direct funds from individual depositors, these funds are obtained through intermediary parties. PacWest said this liquidity boost will return the bank to “more normalized funding levels and improve profitability.”
The Banc of California and PacWest merger will create one of the most expansive local banking operations in the state, with over 70 branches in California set to operate under the Banc of California banner.
