Since late last year, regional banks in L.A. had been seeing a slowdown in growth as they adjusted to the Federal Reserve ratcheting up interest rates.
But that trend could reverse this year after the Fed said it may lower rates once again. That would spur lending at L.A.’s regional banks, driving asset growth and profitability.
For now, the banks’ performances remain a mixed bag.
Koreatown-based Hope Bancorp Inc., parent of $15.3-billion-in-asset Bank of Hope, Beverly Hills-based PacWest Bancorp, parent of the $26.3 billion-in-asset Pacific Western Bank, and downtown-based Preferred Bank, a $4.2 billion-in-asset institution, saw varying results in the second quarter.
Bank of Hope’s profits fell to $42.7 million in the first quarter, down 10% from $47.5 million in same period a year ago. Deposits grew to $12.2 billion in the quarter, up 3.8% from a year ago but down slightly from the first quarter. Outstanding loans also grew year over year but were down slightly from the first quarter.
The bank’s balance sheet shrank slightly through loan payoffs, but the credit quality improved, Tim O’Brien, an analyst with Sandler O’Neill and Partners, wrote in a research note on Bank of Hope.
O’Brien described the “big gorilla in the room this quarter” as a spike in loan payoffs and paydowns that totaled $599 million versus $364 million in the first quarter and $435 million in the 2018 second quarter.
Preferred Bank’s profits rose to $20 million in 2019’s second quarter, up 15% year over year and rising 7% from the first quarter’s $18.7 million. The bank’s total assets in the second quarter grew 8% year over year to $4.3 billion but declined 1% from the first quarter. Like Bank of Hope, Preferred deposits fell incrementally from the first quarter but were up 9% year over year to $3.7 billion.
“One of the reasons for the decrease was higher drawdowns on bank accounts by our commercial customers, which is echoed by the higher credit line usage,” said Li Yu, chairman and chief executive of Preferred. “During the quarter, we proactively reduced interest rates on deposits ahead of much of our competition, which also may have cost us some opportunities.”
Outstanding loans with Preferred Bank rose to $3.5 billion in its second quarter, up 5% from $3.4 billion in the first quarter of 2019 and 13% higher than its year-ago loans in the second quarter.
Pacific Western Bank said profits rose to $128 million in the 2019 second quarter, up 14% from $112.6 million in its first quarter and 11% higher than its 2018 second quarter profits of $115.7 million.
The bank’s total assets in the second quarter grew 7% to $26.34 billion from $24.5 billion in the same year-ago quarter but rose less than 1% from its first quarter 2019 asset level of $26.32 billion — indicating some slowing in growth. Like its fellow banks, PacWest’s deposits fell, declining almost 3% from the first quarter to $18.8 billion but gaining year over year by 5%.
Outstanding loans rose to $18.5 billion, up 9% from $16.9 billion in the second quarter of 2018, and edged higher by less than 1% from 2019’s first quarter.
“Entering the back half of the year, we believe maintaining strong credit quality and exhibiting improved deposit growth trends … are among the most critical factors to support the stock,” said Christopher McGratty, analyst with Keefe Bruyette & Woods.
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