Pacific West Bancorp, the holding company of Pacific West Bank, announced fourth quarter net income of $561 thousand or $0.21 per diluted share and full year net income of $1.8 million or $0.69 per diluted share.
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Net interest margin for 2022 was 4.12%, which was an increase of 50 basis points when compared to 3.62% in 2021.
Fourth quarter 2022 net interest margin of 4.15% increased 19 basis points when compared to 3.96% for third quarter 2022. Net interest margin expansion is a function of asset yield increasing at a faster pace than the Bank's cost of funds.
Asset yield increased 41 basis points during the fourth quarter while the cost of funds increased only 22 basis points. The Bank continues to be asset rate sensitive and well positioned to take advantage of future rate increases.
However, market rate competition for deposits increased during the quarter due to the dramatic increase in market interest rates during 2022.
Loan interest income increased by 31.6%, from $6.8 million in 2021 to $8.9 million in 2022. Investment interest income grew by $1.2 million or 172.4%, compared to 2021.
Non-interest income grew $222 thousand or 82.6% during 2022 driven primarily by fees related to the Bank's participation in a deposit network program which helps depositors receive supplemental FDIC insurance on larger deposit relationships.
More depositors took advantage of this program as economic uncertainty increased.
Asset quality remains strong as there were no loans past-due greater than 30 days, or on non-accrual status as of December 31, 2022. The Bank continues to diligently monitor the loan portfolio as economic circumstances remain uncertain.
As of December 31, 2022, allowance for loans and leases was $2.6 million, which is 1.27% of net loans.
In the first quarter of 2023, the Bank will implement the Current Expected Credit Loss (CECL) methodology for calculating the allowance for credit losses going forward.
Deposits totaled $240.1 million as of December 31, 2022, which represented an increase of $8.8 million, or 3.8%, compared to year-end 2021 and a decrease of ($10) million from third quarter.
Contracting deposits from third quarter created muted deposit growth in 2022 as economic changes caused deposits to leave the banking system. Also, during 2022, the Bank diversified concentrated deposit relationships by allowing large and expensive deposits to leave and be replaced by more granular deposit relationships.
Accounting rules required the Bank to mark investments held for sale to their market price which caused an adjustment to equity of ($3.2) million. This adjustment is due to fluctuations in market interest rates and the Bank does not expect to take a loss on these securities. ■