There are still echoes of the regional banking crisis from the spring despite largely positive earnings results this month. Banc of California (BANC) will combine with Beverly Hills, Calif.-based PacWest Bancorp (PACW) in an effort to reinforce their balance sheets, according to a late Tuesday announcement.
PACW stock skyrocketed after hours after plunging late in Tuesday’s session on a Wall Street Journal report Banc of California was in advance talks to buy PacWest. BANC stock extended regular-session gains overnight.
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PacWest and Banc of California announced after the close they will combine in an all-stock merger. Per terms of the deal, PacWest will merge into Banc of California and Banc of California, N.A. will merge into Pacific Western Bank, the subsidiary of PacWest.
The combined bank and holding company will operate under the Banc of California name and brand once the transaction is closed. PACW stockholders will receive 0.6569 shares of BANC for each common stock of PacWest according to the agreement, which was unanimously approved by the boards of both companies.
The combined bank will have $36.1 billion in assets, $25.3 billion in total loans, $30.5 billion in deposits and more than 70 branches in California. Banc of California expects the deal to add 20% or more to BANC’s 2024 estimated earnings per share.
Private equity firms Centerbridge and Warburg Pincus will invest $400 million for newly-issued equity securities. Banc of California said the capital raise will help reposition the combined company’s balance sheet and generate material savings.
PacWest’s market value was around $1 billion prior to the announcement, according to WSJ data. It’s market cap dove to $933 million as PACW stock tumbled on the news.
PacWest Earnings
PacWest and Santa Ana-based Banc of California are scheduled to release quarterly reports after market close Tuesday and host their respective earnings calls early Wednesday.
PacWest’s adjusted earnings 79% to 22 cents per share which managed to beat FactSet expectations of a drop to 18 cents per share. Revenues net of interest expenses fell 36% to $228.9 million for the quarter. FactSet guided revenue at $153.7 million.
Net interest income fell to $186 million, slightly below estimates of $190.9 million. Deposits at the end of the period fell to $27.98 billion, down 17% from last year but only 1% from the end of Q1. Analysts predicted deposits would slide to $26.87 billion.
Banc of California’s adjusted earnings fell 28% to 32 cents per share but managed to beat expectations of 30 cents per share. Revenue fell 11.8% to $75.65 million, missing forecasts of a 9.8% decline.
BANC, PACW Stock
PACW stock soared nearly 40% after hours Tuesday following its earnings report. Shares dove 27% to a one-month low Tuesday after the initial buyout news. PacWest shares are down more than 66% this year following the spring bank crisis as it faced heavy deposit outflows.
BANC stock added another 10% after its earnings Tuesday and leapt 11% to its highest level since March during trading.
The SPDR® S&P Regional Banking ETF (KRE) rose more than 3% late Tuesday to erase its 1.9% decline during market hours.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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