PacWest Bancorp announced it has agreed to sell cash flow loans with an aggregate carrying value of $1.49 billion as of November 30, 2017 and expects to recognize a pre-tax gain of approximately $13 million. In connection with the sale of this portfolio, PacWest is exiting its commercial lending origination operations related to Healthcare, Technology and General Cash Flows, while retaining and continuing to grow its Security Cash Flow business. PacWest will consider options for redeploying the liquidity generated by this transaction, including partially offsetting the anticipated negative impact to earnings per share by reducing the balance of wholesale deposits and potentially replacing the current $150 million share repurchase program with a larger authorization.
Matt Wagner, President and CEO, commented, “For both cyclical and competitive reasons we have deemphasized growth in our cash flow lending except for our Security Cash Flow business. Today’s action substantially completes that process and allows management to focus attention and resources on profitably growing our other businesses. We believe the definitive nature of today’s action will enhance shareholder value in a number of ways including lowering our credit risk profile, decreasing earnings volatility and significantly mitigating the margin and growth headwinds resulting from incrementally shrinking the cash flow portfolio over time. We anticipate this action will also improve our funding mix by allowing the majority of our wholesale deposits to run off.”
The loan portfolio sale transaction, which was approved by PacWest’s Board of Directors, is expected to close in the fourth quarter of 2017. PacWest also expects to sell an additional portfolio of performing Technology Cash Flow loans with an aggregate principal balance of approximately $152 million prior to year-end at pricing similar to the aforementioned transaction.
PacWest will retain nine non-Security related Cash Flow lending relationships with an aggregate carrying value of approximately $100 million, of which four relationships with an aggregate carrying value of $39 million are classified. The classified loan aggregate carrying value net of associated reserves represents approximately 50% of the aggregate legal balance.