PacWest’s funding challenge

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PacWest Bancorp in Los Angeles said it is proceeding prudently on deposit-gathering and lending even as it reported growth in both categories.

Total deposits increased 4.9% year over year in the second quarter to $18.8 billion, but they fell 2.5% from the first quarter. Core deposits were flat compared with the second quarter of 2018 and fell 3.2% from the first quarter of 2019.

“Competition for core deposits and customers desiring higher yields on their funds resulted in total deposits being flat in the first half of 2019,” CEO Matt Wagner said in a news release Tuesday. However, “core deposit generation remains a priority in order to help fund loan growth and maintain our net interest margin.”

Total loans and leases held for investment reached $18.3 billion at June 30, up 9.5% year over year. That increase came even after the company has worked hard to de-risk its portfolio; charge-offs and provisions for credit losses each fell more than 40% in the first half of the year. Wagner described the loan production as “solid.”

With the possibility of a Federal Reserve rate cut nearing, many bankers and their investors are worried about the damage it could do to net interest income. However, a shift in monetary policy could allow banks an excuse to tighten deposit costs.

Overall, the $26.3 billion-asset PacWest reported a profit of $128.1 million for the second quarter, or $1.07 per diluted share, a 10.7% year-over-year increase. A $22.2 million gain from the sale of securities provided a big boost to the bottom line.

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Earnings Deposits Consumer banking Net interest margin