What happened
Shares of PacWest Bancorp (PACW) traded nearly 11% higher as of 11 a.m. ET today after the bank reported its first-quarter earnings results last night.
Meanwhile, shares of First Republic (FRCB) continued their downward plunge after reporting earnings Monday, with shares down close to 28% in the same time frame and down almost 64% since Monday.
So what
First Republic and PacWest have been two of the banks investors are watching very closely after the banking crisis began in March. Both had exposure to the tech and venture capital space, and both had lots of uninsured deposits.
First Republic's stock has continued to get hammered after the bank reported $100 billion of deposit outflows in the first quarter. Last night, PacWest reported a loss of $10.22 diluted earnings per share. However, on an adjusted basis, diluted earnings per share would have been $0.66 on total revenue of $315.7 million. Adjusted earnings and revenue beat analyst estimates.
The big loss at PacWest came after the company took a goodwill impairment charge of $1.38 billion, which resulted from a significant decline in the company's stock price. Goodwill is a noncash charge and does not impact a bank's regulatory capital ratios.
PacWest CEO Paul Taylor said in an earnings statement:
Our deposits have stabilized, with total insured deposits increasing from 48% of total deposits at year-end to 71% of total deposits at March 31, 2023. Importantly, deposits stabilized in the latter part of March and rebounded nicely in April, increasing approximately $700 million subsequent to quarter-end.
PacWest also designated its $2.7 billion lender finance loan portfolio to be sold in an effort to bolster liquidity in the current environment. The bank also plans to run at higher regulatory capital ratios moving forward.
Now what
As I recently wrote, I believe First Republic is in a lot of trouble right now, given the earnings struggles it is facing and the lack of viable options moving forward.
But the quarterly report was good news for PacWest, especially the rebound in deposits, so I think the worst is likely behind the bank and its outlook is now greatly improved.
