Driven by improved asset quality and a widening net interest margin, PacWest Bancorp in Los Angeles reported a profit of $12.8 million in the second quarter, nearly five times what it earned in the same period last year.
Its earnings per share rose from seven cents in last year's second quarter to 35 cents this year, beating the estimates of analysts polled by Thomson Reuters by eight cents.
A 13% increase in net interest income combined with a nearly 20% drop in funding costs helped boost PacWest's net interest margin by 72 basis points year-over-year, to 5.57%.
However, the $5.4 billion-asset company attributed the improvement largely to a lower provision for credit costs. PacWest, the parent of Pacific Western Bank, set aside $11.4 million for loan losses in the quarter, compared to $21.9 million in the same quarter last year.
At June 30, $65.3 million of its loans not covered by loss-sharing agreements with the Federal Deposit Insurance Corp. were not accruing interest, down from nearly $77 million three months earlier.
Chief Executive Officer Matt Wagner said in a news release Monday that the company continues to monitor the loan portfolio for weaknesses and is addressing problems "promptly." He also said that, despite the company's improved performance, top-line revenue growth remains a challenge.
"Loan portfolio growth remains tepid, as new loan volume is not replacing maturities," Wagner said. "We attribute this to the state of the economy in Southern California, the reluctance of business to make investments and grow, the scarcity of quality credits, and the competition for loans from both other community banks and the large banks."