Santa Ana, Calif.-based Banc of California Inc. logged the largest increase in short interest among US public banks in August as investor concerns lingered around its pending deal with Beverly Hills, Calif.-based PacWest Bancorp.

Banc of California and PacWest agreed in July to combine in an all-stock merger transaction. Under the terms of the deal, PacWest will merge into Banc of California, and Banc of California NA will merge into Pacific Western Bank.

Short interest in Banc of California ticked up 2.8 percentage points from July 31 to 7.1% of all shares outstanding as of Aug. 31, according to S&P Global Market Intelligence data. The gain followed a 2.7 percentage point increase in short interest in the stock in July.

Keefe Bruyette & Woods analyst Kelly Motta downgraded Banc of California's stock to "market perform" in a July 30 note.

"We think this is a good deal for BANC, and the market clearly agrees as the stock is up 10% since news of the deal hit," the analyst wrote. "That said, we have found that recent deal stocks typically have difficulty re-rating post acquisition, at least in the near-term."

PacWest was the third-most shorted US bank stock in August. However, it posted the largest decrease in short interest for the second straight month, registering a 4.7 percentage point decline in short interest to 10.7% of all shares outstanding on Aug. 31.

Richmond, Va.-based Atlantic Union Bankshares Corp. logged the second-highest increase in short interest in August. Short interest in the company's stock rose 1.1 percentage points from July 31 to 5.5% of all shares outstanding on Aug. 31.

Atlantic Union Bankshares signed a deal in July to acquire Danville, Va.-based American National Bankshares Inc., the holding company of American National Bank and Trust Co., in an all-stock transaction valued at roughly $416.8 million — one of the largest US bank deals announced in 2023.

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Bank of Hawaii remains most-shorted US bank stock

Honolulu-based Bank of Hawaii Corp. remained the most shorted US public bank stock for the second month in a row. As of Aug. 31, short interest in the company's stock was 21.7% of shares outstanding. Bank of Hawaii was also one of the most expensive US bank stocks as of Aug. 31, according to a Market Intelligence analysis.

Bank of Hawaii, like Western Alliance Bancorp. and PacWest, has been one of the most shorted US bank stocks in the months since the March bank failures.

As of June 30, Bank of Hawaii's deposit balances have remained stable, but the company has large unrealized losses in its securities portfolio. With regard to loans, management expects flat growth for the rest of the year.

"What I would anticipate is likely loan growth to be flat at this point moving forward," said President and CEO Peter Ho during the second-quarter earnings call. "Hopefully, we'll see that change as more positive signals come out of the economy ... But for now, [it] feels reasonably muted."

Short interest inches up for smaller banks

Banks across asset buckets registered declines in their median short interest, except those with less than $5 billion in total assets. As of Aug. 31, banks in the asset category posted an uptick of about 5 basis points in median short interest to 0.55% of all shares outstanding.

The median short interest for all US public banks declined by roughly 7 basis points to 1.30% of all shares outstanding on Aug. 31.