In his first month as CEO of PacWest Bancorp, Paul Taylor began charting a new course for the Los Angeles bank.
The $41.2 billion lender will shrink its prime finance and multifamily lending divisions, restructure one of its lending subsidiaries and intentionally slow loan growth to maximize shareholder value, executives said.
“These actions will help us refocus our efforts on our core business, accelerate our capital growth and improve operational efficiency over time,” Taylor said on a conference call with analysts on Friday.
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Dubbed “One Team,” the strategic plan comes with a set of financial goals, including capital improvements. PacWest said it would work to tighten controls over pay and fees for third-party providers. Meanwhile, PacWest said it would focus more on its role as a community bank.
Taylor said he and other PacWest officials have been He was named President and CEO successor in June; he formally took over the bank in January. 1. Taylor succeeds Matthew Wagner, who is Longest serving CEO in banking industry.
Taylor said the terminated lending unit was a “low-yielding, non-relationship” business.
“It was a fairly easy decision to get rid of those,” Taylor said.
PacWest, the holding company for PacWest Bank, said it would draw about $3 billion from its multifamily lending business, which originates small loans. But William James Black, executive vice president of strategy and corporate development at PacWest, said the bank will continue its multifamily business with “core depositors.”
Another lending unit the bank is exiting, its senior finance unit, represents about $850 million in loans on its balance sheet.
Restructuring PacWest’s lending subsidiary, Civic Financial Services, should yield substantial savings, executives said. The bank expects the plan to improve Civic’s profitability and reduce its risk profile.
As part of its strategic plan, the bank sold $1 billion in outstanding securities in the fourth quarter, resulting in a loss of $49 million. The bank used the proceeds from the sale to reduce its outstanding debt with Federal Home Loans Bank of San Francisco.
The bank forecasts flat loan and deposit balances in 2023, with net interest margins in line with its 2022 margins.
Management noted that PacWest, and much of the industry, will face a number of challenges 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 short of expectations, dragging down profits. The bank reported earnings of $49.5 million, down 64% from a year earlier.
Rising deposit costs have weighed on banks’ net interest margins, which were also below analysts’ expectations. Deposit growth also came in below expectations.
PacWest shares rose nearly 4 percent after the bank announced its plans on Friday. Shares were down about 1.3 percent Monday afternoon.