PacWest Bancorp is restructuring its operations as it looks to exit silos and unify its business lines. That includes making changes at its Civic Financial Services mortgage lending business.
“PacWest has a long history of acquisitions that brought us great customers and talented employees, but also very processes and different cultures,” said Paul Taylor, who recently took over as president and CEO, on the company’s fourth quarter earnings call. “Now the time is right to focus on coming together to function even more uniformly and efficiently as one company.”
Mark Yung, PacWest’s executive vice president and chief operating officer is now in charge at Civic. William Tessar, who had remained at Civic following its Feb. 1, 2021 acquisition, has left the company according to Mortgage Professional America.
Requests for further comment from PacWest and Civic have yet to be returned.
PacWest is integrating Civic into its operations, as the parent company had been “hands off” with that business since the acquisition, Taylor said.
“The one thing we know is that there’s a lot more overhead than there should be so we expect significant savings from that entity,” he continued. “And right now we’re looking at all the products that they offer and determining which ones of those products we’ll hang on to and go forward with.”
The changes will make Civic more profitable and lower its risk profile for PacWest, the parent of Pacific Western Bank. Fitch Ratings downgraded PacWest in August.
Prior to the acquisition, PacWest was a purchaser of Civic’s production and so while it likes those assets, it is just a matter of finding the right size for the business within that risk profile.
Civic’s loan portfolio is approximately 10% of PacWest’s earning assets and management wants to shrink that, Taylor said.
“The markets are opening up a little better in the [non-qualified mortgage] area,” Taylor said. “And we are looking at trying to sell some of that portfolio just to bring it down.”
The corporate restructuring is taking place as PacWest reported fourth quarter net income of $39.6 million, down from $122.2 million in the third quarter and $136 million in the fourth quarter of 2021. Full year earnings of $404.3 million declined approximately 33% from nearly $607 million for 2021.
PacWest took a $29 million impairment related to goodwill on its fourth quarter earnings as part of the Civic restructuring.
It acquired Civic in an all-cash transaction at an undisclosed price. At the time of the deal, PacWest recognized $125.4 million of goodwill related to Civic, according to a Securities and Exchange Commission filing.
Civic, which specializes in financing non-owner occupied residential properties, originated $713 million during the fourth quarter, compared with $831 million for the third quarter and $480 million for the fourth quarter of 2021.
In addition, PacWest is shutting down its small balance multifamily lending business. However, during the call, management made it clear the company will remain in customer-based multifamily originations. Additionally, the company is exiting premium financing.
During the fourth quarter, PacWest sold $1 billion of securities at a loss of $49 million in order to pay down its Federal Home Loan Bank borrowings.
