PacWest Struggles Steady Deposit Outflows Since SVB and First Republic Failure

Scott Peters
11 May, 2023
New York City

PacWest Bancorp plunged 19.5% to $4.88 after the regional bank said deposits declined 9.5% for the week  ended May 5. 

In the first quarter, total interest income increased to $517.7 million from $322.9 million and the company swung to a net loss of $1.2 billion from a profit of $120.1 million and diluted earnings per share was ($10.22) from $1.01 a year ago. 

The goodwill impairment charge of $1.38 billion led to a net loss of $1.2 billion in the quarter. 

The goodwill charge is a non-cash charge and has no impact on the bank's regulatory capital ratios, cash flows, or liquidity position.

 

Deposit Outflow Accelerated After SVB and First Republic Bank Closures

The company suffered deposit outflow after the closure and sale of Silicon Valley Bank on March 10.

Total deposits decreased by $5.7 billion or 16.9% in the first quarter and most of the decrease in deposits was from uninsured deposits, which resulted in the percentage of insured deposits to total deposits to increase from 48% at December 31, 2022 to 71% of total deposits at  March 31, 2023.

Following the closure and sale of First Republic Bank on May 1, during the week ended May 5, 2023, deposits declined approximately 9.5%, with a majority of that decline occurring on May 4th and May 5th after the news reports on the afternoon of May 3rd when the company was the focus of financial news across the nation. 

 

Total Assets In First Quarter Increased 

At the end of the first quarter, the company had total assets of $44.3 billion, including $28.5 billion of total loans and leases, net of deferred fees, $4.8 billion of securities available-for-sale, $2.3 billion of securities held-to-maturity, and $6.5 billion of interest-earning deposits in financial institutions.  

At the end of fourth quarter 2022, the company had a total assets of $41.2 billion, including $28.7 billion of total loans and leases, net of deferred fees, $4.8 billion of securities available-for-sale, $2.3 billion securities held-to-maturity, and $2.0 billion of interest-earning deposits in financial institutions.

 

Total Liabilities Increased On Persistent Deposit Outflow  In First Quarter

At the end of the first quarter, the company had total liabilities of $41.5 billion, including total deposits of $28.2 billion and borrowings of $11.9 billion, compared to $37.3 billion of total liabilities at December 31, 2022, including $33.9 billion of total deposits and $1.8 billion borrowings. 

The $4.3 billion increase in total liabilities since year-end was due mainly to an increase of $10.1 billion in borrowings, partially offset by a $5.7 billion decrease in deposits.

 

Net Loss Dragged Equity Lower In First Quarter 

At the end of the first quarter, the company had total stockholders' equity of $2.8 billion compared to $4.0 billion at the end of 2022.  

The $1.2 billion decrease in stockholders' equity since year-end was due mainly to the net loss of $1.2 billion. 

Consolidated common equity Tier 1 (CET1), Tier 1 capital and Total capital ratios increased to 9.21%, 11.15%, and 14.21% at March 31, 2023 due primarily to positive adjusted earnings combined with a decrease in risk-weighted assets.

PacWest funded this decline in deposits with available on-balance sheet liquidity. 

As of May 10, 2023, immediately-available liquidity (on-balance sheet liquidity  and unused borrowing capacity) was $15.0 billion, which exceeded uninsured deposits of $5.2 billion, representing a coverage ratio of 288%, the bank said in a regulatory filing with the SEC.