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Beneath The Merger Of PacWest And CapitalSource

Jul. 30, 2013 1:26 PM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Continuation of Branch Expansion & Loan Activity

(The article that follows on CapitalSource relates to this article)

According to a press release announcing the merger of: "PacWest and CapitalSource will merge in a transaction valued at approximately $2.3 billion. The combined company will be called PacWest Bancorp and the combined subsidiary bank will be called Pacific Western Bank. The CapitalSource national lending operation will continue to do business under the name CapitalSource as a division of Pacific Western Bank.

The ownership will be 45% PacWest, 55% CapitalSource. There is a termination provision in here with a 19.9% stock option. The board will consist of 8 people from PacWest and 5 people from CapitalSource. John Eggemeyer, current Chairman of Pacific Western, will be the Chairman with Matthew P. Wagner as CEO.

PacWest Bancorp was formerly known as First Community Bancorp., a Rancho Santa Fe-based bank holding company with $4.6 million in assets that merged First National Bank and Pacific Western National Bank, renaming them Pacific Western Bank, originally organized October 22,1999, and based in San Diego, California. First Community grew at the first of the year by buying Foothill Independent Bancorp, Harbor National Bank.

Today PacWest continues in the same mode, buying Security Pacific Bank, Los Angeles, 2008, Affinity Bank, Ventura, California 2009, Los Padres Bank, Solvang, California 2010, April 3, 2012, Celtic Capital Corporation, Santa Monica, California, First California Financial Group, Westlake Village, 2012, as well as Marquette Equipment Finance in January 3, 2012 changing its name to its own Pacific Western Equipment Finance on March 25, 2012.

http://www.nasdaq.com/symbol/pacw#ixzz2aNIhxkOz

The website states :Through our subsidiaries, BFI Business Finance and Celtic Capital Corporation, and our divisions, First Community Financial and Pacific Western Equipment Finance, we also provide working capital financing and equipment leasing to growing companies located throughout the United States. To them you now can add CapitalSource.

Matthew P. Wagner is Chairman and Chief Executive Officer of Pacific Western Bank and CEO of PacWest Bancorp, the holding company for Pacific Western Bank. Prior to joining PacWest in 2000, Mr. Wagner was President and Chief Executive Officer of Western Bancorp from 1996 until 1999, when Western Bancorp was acquired by U.S. Bancorp. Prior to joining Western Bancorp in 1996, Mr. Wagner served as an executive vice president with U.S. Bancorp in Minneapolis, Minnesota, from 1990 to 1996, and as a senior vice president from 1985 to 1990.

In the conference call following the announcement, as recorded by SeekingAlpha, Wagner was remarked he didn't want to get involved in a bank having tough loan growth: "Most of the community banks you are looking at today, you've got anywhere from a 40% to 70% loan-to-deposit ratio...You've got a big-buying portfolio that I don't need. I am going to end up with a bunch of excess deposits."

""With CapitalSource and their superior loan-generation platform, I've got that now," Wagner says. "If we buy a company with an under-leveraging balance sheet, I've got the ability to leverage that now into good, high-performing loans."
https://seekingalpha.com/news-article/7122042-pacwest-bancocp-and-capitalsource-inc-agree-to-merge

While the merger is good in apparently all respects, it also adds to the branch locations of Pacific Western Bank. Look at the numbers:

FDIC.gov March 31,2013, Pacific Western had 991 full time employees at 89 offices (only duplicate cities appear to be two offices in Westlake Village). CapitalSource offices are not located in other locations which are in San Diego, 17 offices, San Francisco, 2 offices, San Luis Obispo, 7 offices, one in San Mateo County, 4 in Santa Barbara and 11 in Ventura County. Wagner stated in his conference many of PacWest customers were age 60 and heavy into CD's. Whether the marketplace or customer base is similar may depend on the location of the branch itself.

March 31, 2013 Tier 1 risk-based capital ratio14.51%

(in millions, unless otherwise)

Net Equity
2006 $1,308.3
2007 $1,312.0
2008 $494.8
2009 $584.9
2010 $570.1
2011 $625.5
2012 $649.6
3/13 $650.2

Profit
2006 $91.0
2007 $106.0
2008 -$715.1 (Pre-tax net operating income-685,873)
2009 $5.3
2010 -$52.3
2011 $58.0
2012 $61.2
3/13 $14.7

Non-Current Loans
2006 $22.1
2007 $22.5
2008 $63.5
2009 $240.1
2010 $151.5
2011 $124.8
2012 $82.0
3/13 $88.2

Charge Offs
2006 $1.4 ($1.2 commercial/industrial, $395,000 non-us address, $115, nonfarm/$29,000 construct,$22,000 other consumer)
2007 $2.8 ($1.8 commercial/ind.,$660,000 const./land,$454,000 nonfarm/nonres,$44 other consumer)
2008 $38.0 ( $24.9 const./land, $7.1 commercial/ind., $3.8 other consumer,$1.9 nonfarm/non res, $246,000 1-4 family homes)
2009 $86.4 ($40.2 nonfarm/nonres.,$28.1 const./land, $11.7 commercial, $983, individual, $12,000 other)
2010 $222.7 ( $99.3 nonfarm/nonres.,$30.3 const./land, $13.1 commercial/ind.,$9 multi-family, $5.9 other loans, $3.3 consumer, $99,000 farmland)
2011 $39.1 ($23.4 nonfarm/nonres., $6 other loans, $4.5 const./land,$$1.1 1-4 family, $61,000 consumer)
2012 $14.0 ($11.3 const./land, $2.6 commercial/ind., $692,000 1-4 family, $143,000 individuals)
3/13 $126,000 ($242,000 nonfarm/nonres.,$222,000 commercial industrial, $114,000 lease receivables
-$323,000 const./land, -$109,000 multi-family, -$14,000 individuals)

Construction and Land, 1-4 family multiple residential, Multiple Family Residential, Non-Farm Non-Residential loans.

(All bank numbers from FDIC.gov)

PacWest 2nd Quarter
http://leasingnews.org/archives/Jul2013/7_24.htm#pacwest

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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