In his first month as chief executive at PacWest Bancorp, Paul Taylor has started charting a new course for the Los Angels bank.
The $41.2 billion-asset bank will wind down its premium finance and multifamily lending segments, restructure one of its lending subsidiaries and intentionally slow loan growth in a bid to maximize shareholder value, according to executives.
"These actions will help us refocus our efforts on our core businesses, accelerate our capital growth and improve operational efficiencies over time," Taylor said on a call with analysts Friday.
The strategic plan, dubbed "One Team," comes with a series of financial goals including improved capital. PacWest said it would work on tightening its expense controls around compensation and third-party vendors. At the same time, PacWest said it would place an increased focus on its role as a community bank.
Taylor said he and other PacWest officials had been working on the planned changes since
The lending segments being discontinued were "low-yield, no-relationship-type" businesses, Taylor said.
"That was a fairly easy decision to get rid of those," Taylor said.
PacWest, the holding company of Pacific Western Bank, said it would run off about $3 billion from the part of its multifamily lending operation that originates small-balance loans. But the bank will continue the multifamily business it does with its "core deposit customers," said William James Black, PacWest's executive vice president for strategy and corporate development.
The other lending segment the bank is exiting, its premium finance arm, represents about $850 million of loans on its balance sheet.
Restructuring PacWest's lending subsidiary, Civic Financial Services, should lead to significant savings, executives said. The bank expects the plan to increase Civic's profitability and lower its risk profile.
As part of its strategic plan, the bank sold $1 billion of for-sale securities in the fourth quarter, which resulted in a loss of $49 million. The bank used funds from the sale to reduce outstanding debt with the Federal Home Loan Bank of San Francisco.
The bank forecast flat loan and deposit balances in 2023 and a net interest margin in line with its 2022 margin.
Management pointed to a number of challenges that PacWest, alongside much of the industry, would face in 2023: persistent inflation, rising interest rates, a slowing economy and supply-chain issues.
In the fourth quarter, PacWest's net interest income and noninterest income fell below expected levels, weighing down profit. The bank reported earnings of $49.5 million, a 64% decrease from the year-earlier period.
Rising deposit costs held down the bank's net interest margin, which also missed analysts' expectations. Deposit growth, too, fell short.
PacWest shares rose almost 4% after the bank announced its plan Friday. Shares were down about 1.3% Monday afternoon.
