Banc of California in Santa Ana has agreed to purchase PacWest Bancorp in Los Angeles in an all-stock transaction valued at $1 billion.
If regulators approve the deal, Banc of California's acquisition of PacWest would create a $36 billion-asset institution heavily concentrated in the Southern California market. The combined bank's deposits would total $30.5 billion and its loan portfolio would total $25.3 billion, according to a Banc of California press release. Banc of California has $9.4 billion of assets at the end of the second quarter. PacWest had roughly $44 billion of assets as of the first quarter.
The merger is intended to "capitalize on the opportunities created for stronger financial institutions in the wake of the recent banking industry turmoil," Banc of California CEO Jared Wolff said in the statement. Wolff would retain his leadership position at the bank.
The merger was announced shortly after the stock market's close on Tuesday, though reports of the pending transaction earlier in the day drove PacWest's stock price down by 27% while Banc of California's stock ended the trading session up 11%.
PacWest shareholders would receive two-thirds of a share of Banc of California for each owned share of PacWest, according to the press release.
PacWest was among the beleaguered West Coast banks impacted by deposit runoff and market volatility earlier this year that began after the collapse of Silicon Valley Bank in March. In April, PacWest reported losing almost
Details of the transaction include the repayment of around $13 billion in wholesale borrowings, which will be funded by asset sales and excess cash. PacWest had already begun shedding assets, including a $3.5 billion loan portfolio sale in May.
Banc of California also announced on Tuesday a capital injection totaling $400 million from private equity firms Warburg Pincus and Centerbridge Partners. The money will allow the bank to "reposition" its balance sheet and "generate material savings," the press release said.
Banc of California expects to have an 85% loan-to-deposit ratio and a 10% common equity Tier 1 capital ratio after the pending acquisition closes. The bank is estimating that earnings per share in 2024 would be between $1.65 and $1.80.
During a call with analysts following the deal announcement, Wolff said that the Banc of California's acquisition of PacWest "bolsters capital and liquidity" of the combined businesses to create the third-largest commercial bank headquartered in California.
Post-merger Banc of California will target "in-market relationship banking" by focusing on treasury management services and loan growth to boost "low-cost" commercial deposits, Wolff said during the call.
"The heart of the combined company is going to be the community banking franchise," Wolff said.
Bank merger-and-acquisition activity has been
A number of recent deals have struggled to close either because of market volatility or regulatory concerns. TD Bank and First Horizon
Wolff said during the conference call that the purchase of PacWest was "previewed" with regulators and that the timeline for the deal to close later this year or in early 2024 is "achievable."
In response to an analyst's question about the cultural fit of combining two banks through a merger, Wolff said that he has never seen a deal with "this amount of overlap and commonality between the two players."
The announcement led both Banc of California and PacWest to postpone their scheduled second-quarter earnings presentations.
