It was another hard step for Pacific Western Bank. Earlier this week the news broke that it sold its CRE loan portfolio to Kennedy Wilson for $2.4 billion. Yesterday, the announcement was of the sale of Civic Financial Services (CIVIC), the banks residential business-purpose lending arm, to Roc Capital Holdings (Roc360) for an undisclosed amount.
Both moves are part of the banks attempt to walk back from a dangerous position as several other banks like Silicon Valley Bank, Signature Bank, and First Republic Bank found themselves without sufficient liquidity to satisfy heavy withdrawals and were then closed down by the Federal Deposit Insurance Corporation.
PacWest’s first quarter earnings announcement in late April set off a rapid drop in stock price with a $1.21 billion net loss, which was $10.22 per share. That was a level of financial instability that the other banks hadn’t shown. Shares are down to about a quarter of what they were as late as mid-February 2023.
The portfolio sale that became noticed yesterday actually occurred on May 19 and was of a portfolio encompassing 74 construction loans to Kennedy-Wilson Holdings for $2.4B, a discount of $200M, and an assumption of $2.7 billion in potential funding obligations. In PacWest’s 8-K filing with the SEC at the time, it said the move was “[c]onsistent with the previously announced strategy of PacWest Bancorp to pursue strategic assets sales and focus on our core community banking business.”
That frames this latest announcement from Roc360 that it was buying the origination assets from CIVIC, “one of the leading institutional private lenders in the United States specializing in originating residential business-purpose loans,” as the announcement phrased it.
“CIVIC was founded in 2014 to serve investors who did not fit within the traditional real estate lending criteria,” they said. “Since its inception, CIVIC has funded in excess of $9.4 billion through its borrower-direct, broker, and correspondent channels.”
Working with investors that don’t fit traditional lending criteria is another way of saying riskier business. With Q1’s loss, the prospect of added risk atop broader concerns about CRE would not fit within that focusing on a core community banking business.
“The CIVIC asset acquisition materially strengthens Roc360’s existing national origination footprint, specifically in CIVIC’s home state of California, the largest market for business-purpose loans to real estate investors,” the acquirer said. “In 2022, Roc360 affiliates and CIVIC collectively funded in excess of $7.6 billion in business-purpose loans.”
