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April 26
After swinging to a first-quarter loss, PacWest Bancorp in San Diego — with a cleaned-up balance sheet — may be better poised to resume making winning bids for failed banks.
The $5.2 billion-asset company reported a loss of $60.5 million Wednesday, compared with earnings of $1.4 million in last year's first quarter.
The loss was largely attributed to PacWest's sale in February of $323.6 million of adversely classified loans for $200.6 million.
PacWest could have reduced its losses on the 61 noncovered loans by working through them over a period of time. But selling the loans right away made sense because it spruces up the balance sheet, frees up management's time and positions the company for growth, said Aaron James Deer, an analyst at Sandler O'Neill & Partners LP.
"It was a noisy quarter with them doing the sizable loan sale that helps to drive a big earnings-per-share loss, but beyond that action, the company continued to be very aggressive in dealing with problem assets," Deer said. "By the quarter's end, they had made some big improvements in credit metrics."
PacWest had $129 million of nonperforming assets on its balance sheet at the end of the quarter, less than half the amount it had on Dec. 31.
"It not just optically, but generally … positions them much better," Deer said. "It takes them out of defensive mode and lets them think more offensively in terms of FDIC deals and organic growth."
Yet while many of its credit metrics are improving, the company expects credit problems to continue.
Deer said PacWest's efforts to shore up its balance sheet should make it a more attractive acquirer to the Federal Deposit Insurance Corp. because management won't be so focused on internal problems.
PacWest remains well capitalized. It said that on March 31 it had a leverage ratio of 10.47%, a Tier 1 risk-based ratio of 14.33%, a total risk-based ratio of 15.60% and tangible common equity ratio of 8.58%.
PacWest has been involved in two failed-bank deals in the past couple of years. Its subsidiary bank acquired Affinity Bank in Ventura, Calif., in August and Security Pacific Bank in Los Angeles in November 2008.
Deer said that he expects PacWest to look for deals in Southern California but that does not rule out other failed-bank transactions. "It wouldn't be entirely surprising to see them go into the Pacific Northwest, where they have hinted that is a possibility as well," he said.
