PacWest to withdraw from two business lines and restructure the other

In his first month as CEO of Pac West Bancorp, Paul Taylor has begun charting a new course for the Los Angeles bank.

The $41.2 billion bank will spin off its prime finance and multifamily lending units, restructure one of its lending branches and deliberately slow loan growth to maximize shareholder value, managers said.

“These actions will help us focus our efforts on our core businesses, accelerate our capital growth and improve operational efficiency,” Taylor said in a call with analysts on Friday.

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Dubbed “One Team,” the strategic plan comes with a series of financial goals, including improved capital. Pac West said it will work to strengthen its cost controls around reimbursement and third-party suppliers. At the same time, Pac West says it will put more emphasis on its role as a community bank.

Taylor said he and other Pac West officials have been working on the proposed changes. In June, he was named president and heir to the throne; On January 1, he officially took over the leadership of the bank CEOs who have been in the bank for a long time.

The discontinued loan units are “low-yield, unrelated” businesses, Taylor said.

“It was a very easy decision to get rid of those,” Taylor said.

PacWest, the holding company of Pacific Western Bank, said it will divest about $3 billion from its multifamily lending business, which originates from small-scale loans. But the bank will continue its multifamily business with “its core depository customers,” said William James Black, PacWest’s executive vice president of strategy and corporate development.

The other loan segment the bank is issuing, its premium financing arm, represents about $850 million in loans on its balance sheet.

A restructuring of Pac West’s lending subsidiary Civic Financial Services should bring significant savings, executives said. The bank expects the plan to boost Civic’s profitability and reduce its risk profile.

As part of its strategic plan, the bank sold $1 billion in securities in the fourth quarter, resulting in a loss of $49 million. The bank used the proceeds from the sale to reduce its debt with the Federal Home Loan Bank of San Francisco.

The bank forecasts flat loan and deposit balances in 2023 and a net interest margin in line with the 2022 margin.

Management Pac West, along with the rest of the industry, pointed to several challenges facing 2023: persistent inflation, rising interest rates, economic slowdown and supply chain issues.

In the fourth quarter, Pac West’s net interest income and noninterest income fell below expectations, weighing on profits. The bank reported revenue of $49.5 million, down 64 percent from last year.

Rising deposit costs also pushed down the bank’s net interest margin, which missed analysts’ estimates. Deposit growth also fell short.

Pac West shares rose nearly 4 percent after the bank announced the plan on Friday. Shares were down 1.3% on Monday afternoon.