PacWest Shows Willingness to Buy and Sell in Southern California

Matthew Wagner has been a banker for nearly three decades, though his recent moves suggest he may be a trader at heart.

Wagner, the chief executive of the $5.4 billion asset PacWest Bancorp (PACW), has shown twice this year that he is not afraid to bid hard for what he wants, trumping a rival for one bank and making an aggressive bid for another.

Wagner showed Monday that he is willing to unload what he does not need, agreeing to sell 10 branches in Los Angeles and San Diego, along with $145 million in deposits. The sale excludes loans.

Wagner said the sales were just a form of belt tightening. PacWest, which has 76 branches, expects the deal to reduce annual expenses by about $2 million. That reduction would include staffing costs and expenses tied to maintaining the branches.

"Pure efficiency play, nothing more to read in to it," Wagner wrote in an e-mail Monday, declining to elaborate further.

PacWest's expenses-to-revenue ratio in the first quarter was an unusually high 97%, due largely to a penalty of the early repayment of $225 million in Federal Home Loan Bank advances. The ratio excluding that fee and other atypical costs was roughly 58.6%.

The branch sale seems unusual because of Wagner's interested in buying banks in Los Angeles. In March he outbid Umpqua Holdings (UMPQ) for American Perspective Bank (APBA) in San Luis Obispo. In May, PacWest went public with a $212 million offer that was rebuffed by the board of First California Financial (FCAL) in Westlake Village.

PacWest could benefit from pruning after bulking up in its core market by buying failed banks. The branch sales will not involve much cash; the 2.5% deposit premium amounts to roughly $3.6 million.

The banks PacWest has recently pursued are in well-to-do areas north of Los Angeles or in pockets of the city where it has some scale. Opus, which is based in Irvine, Calif., will buy PacWest's out-of-the-way branches in San Diego and standalone branches in places where the seller lacks density.

PacWest can afford to shed deposits: it had $1.1 billion more deposits than loans at March 31, according to regulatory filings.

For Opus, the deal is a chance to buy cheap liquidity and sites where it has been interested in adding branches, says Stephen H. Gordon, the bank's chairman and chief executive.

Opus is originating about $100 million loans a month, he says. The deposits it will obtain pay lower interest rates than those that Opus typically pays depositors. Most of the deposits are from businesses that Opus hopes to make borrowers, he says.

Gordon says deposits are inexpensive for now, making them a smart buy. "We're not going to be at zero interest rates forever. At some point or another rates will rise and core deposits are going to become very important," he says.