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PacWest Bancorp Slips 6.5% After-Hours Despite Beating Q3 Expectations

PacWest Bancorp (PACW) reported better-than-expected third-quarter results aided by growth in both deposits and loans, coupled with strong credit quality. The bank’s total deposits grew to $30.56 billion, and loans and leases increased to $20.51 billion. However, following the news, shares slipped 6.5% in the extended trading session on October 18.

The bank reported earnings of $1.17 per share, exploding 207.9% year-over-year, and outpaced analyst estimates of $1.04 per share.

Additionally, total revenue (interest income plus noninterest income) climbed 12.2% year-over-year to $341.4 million and also beat Street estimates of $316.1 million.  

Notably, PACW reported net interest income (NII) of $275.8 million and non-interest income of $51.35 million, showing solid growth in both loan disbursements and average interest-earning assets.

Furthermore, the bank completed its $255 million cash acquisition of the Homeowners Association Services Division of MUFG Union Bank, N.A on October 8, 2021, adding approximately $4.1 billion in stable, low-cost deposits to PACW’s balance sheet. (See Insiders’ Hot Stocks on TipRanks)

Commenting on the results, Matt Wagner, President, and CEO of PACW said, “For the second consecutive quarter, we experienced significant loan growth as loans grew $1.0 billion to an all-time high of $20.5 billion… We continued to experience strong deposit growth as core deposits grew by $1.1 billion during the third quarter while our cost of average total deposits moved into the single digits at 8 basis points.”

Recently, Wells Fargo analyst Jared Shaw lifted the price target on the stock from $50 to $60 (24.7% upside potential) while maintaining a Buy rating.

In the Mid Cap Banks 3Q21 Preview report, Shaw noted that he expected PACW to witness further valuation expansion with strong results and updated guidance from management.

In the research note, Shaw said, “Our broader view on the space continues to strengthen given a credit backdrop that has supported the improved underwriting standard at banks. Additionally, valuations should move higher as the narrative for rising interest rate gains steam in the coming months. Quarter-to-quarter valuation fluctuations are likely to remain driven by loan growth, but as we look ahead, the prospects for the industry are all trending higher.”

Overall, the stock commands a Strong Buy consensus rating based on 5 Buys and 1 Hold. The average PacWest Bancorp price target of $50.60 implies 5.2% upside potential to current levels. Shares have gained 159.6% over the past year.

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