PacWest Bancorp

The company reported net interest income of $239.1 million. Net interest margin was 2.78% versus 1.69% in 4Q 2023, and 2.82% in March 2024 versus 2.15% in December 2023. Average yield on interest-earning assets rose 45 basis points from 4Q 2023, while average cost of interest-bearing liabilities fell 59 basis points from 4Q 2023 and 81 basis points from December 2023. Noninterest income was $33.8 million and noninterest expense was $210.5 million, down $73 million versus the December 2023 quarterly run rate. The bank paid down $1.1 billion of BTFP during the quarter and left $1.5 billion outstanding, and non-interest-bearing deposits increased from 25.6% to 27.1% of total deposits. Credit results included a $10 million overall provision, ACL to total loans of 1.26%, and four CRE credits driving about 60% of the NPL increase. Forward, management reiterated 4Q 2024 targets of approximately 1.1% ROAA and approximately 13% ROTCE, expects total loans to stay relatively flat, expects NIB deposits to keep growing, and said margin and NII should improve through the year as lower-cost funding and higher-yielding loan production continue.

Jared Wolff framed the quarter as evidence that the combined bank is executing methodically on its post-merger plan. He emphasized balance sheet repositioning, deposit gathering, and cost reduction as the key levers to reach profitability targets, while noting the bank is prioritizing profitability over growth in 2024. His tone was confident but measured, repeatedly saying the team is making progress and that the bank has multiple levers if one area comes in lighter than expected.

Joe Kauder highlighted $239.1 million of net interest income, a 2.78% net interest margin, and $33.8 million of noninterest income. He said average yield on interest-earning assets increased 45 basis points from 4Q 2023, while average cost of interest-bearing liabilities declined 59 basis points, helped by paying down $1.1 billion of BTFP and reducing high-cost wholesale funding. He also pointed to noninterest expense of $210.5 million, the reduction in deposits of about $1.5 billion, non-interest-bearing deposits rising to 27.1% of total deposits, wholesale funding falling to 16.9%, cash at about 8.5%, and liquidity at 2.4 times uninsured and uncollateralized deposits.

Analysts focused on why margin and accretion were a bit different than expected, and management said market rates on refinancing brokered deposits were higher than anticipated but still produced net savings, while accretion was broadly in line and should be thought of as stable going forward. Questions also centered on expense savings, BTFP repayment, and the preferred; management said FDIC normalization, system conversion by end of 3Q, and facility rationalization should drive more savings, BTFP repayment would likely occur in 2Q but depends on deposit flows, and preferred redemption is not planned as they want to build capital first. Analysts pressed on nonperforming and classified loans, and management said the CRE and Civic issues were largely a normalizing credit move, with the office credits in California and the Civic book expected to run off or potentially be sold.