PacWest Bancorp is set to merge with Banc of California in a $400 million equity deal, according to a joint announcement the banks released Tuesday afternoon, ahead of their second-quarter earnings results.

Under the terms of the deal, both banks will merge into one bank called Pacific Western Bank.

The move aims to restore confidence in the sector after the collapse of three regional banks earlier this year.

"The combined company will have the strength and market position to support the banking needs of small and medium-size businesses in California and to capitalize on the opportunities created for stronger financial institutions in the wake of the recent banking industry turmoil," said Jared Wolff, president and CEO of Banc of California, in a statement. Wolff will continue to serve as president and CEO of the merged bank.

Centerbridge Partners and Warburg Pincus are funding the all-stock merger transaction.

PacWest stock closed down 27% on Tuesday following early reports from The Wall Street Journal of the deal. Meanwhile, Banc of California closed 11% higher. Both stocks were up slightly in after-hours trading.

This story is developing and will be updated.