Building a regional banking franchise, the parent company of Pacific Western Bank has agreed to pay $2.3 billion in cash and stock for commercial lender CapitalSource Inc., more than doubling its asset size and bringing its number of branches to 96 in 14 California counties.
The merger of the two Los Angeles companies, announced late Monday, is expected to close in the first quarter of 2014, creating a bank with $15.4 billion in loans and other assets and branches from San Francisco to San Diego.
It would be the ninth-largest bank based in the state and larger than all other Southern California banks except Los Angeles’ City National Corp. and two Pasadena-based lenders, OneWest Bank and East West Bank. The state’s biggest banks, including giant Wells Fargo & Co., are headquartered in San Francisco.
PacWest Bancorp, Pacific Western's parent, moved its headquarters to Century City from San Diego in 2010. It is expanding fast, having completed a takeover of First California Financial Group Inc. of Westlake Village in May -- a deal that brought its loans and other assets to $6.7 billion.
PacWest's chief executive, Matthew Wagner, and chairman, John Eggemeyer, are to retain those roles at the holding company for the merged banks.
"CapitalSource has built an enviable lending platform and growth engine," Wagner said in a statement. "PacWest has a valuable community banking franchise and a low-cost deposit base," because many depositors are businesses that don't earn interest on their working funds.
CapitalSource, a specialist in lending to small and medium-sized businesses nationwide, has $8.7 billion in assets and 21 branches. The lending business will retain its name as a division of Pacific Western Bank, with CapitalSource CEO James Pieczynski as its president. The branches will be rebranded Pacific Western.
The deal, set to close in the first quarter of 2014, should make PacWest more attractive to investors because it "blends complementary business models," said banking analyst Julianna Balicka of Keefe, Bruyette & Woods.
"PacWest has wanted to grow specialty lending, and CapitalSource has publicly discussed wanting business deposits to support their lending," Balicka said.
Once a real-estate investment trust based in Maryland, CapitalSource obtained a banking franchise in 2008 when it acquired $5.6 billion in deposits from the remains of Orange County-based Fremont Investment & Loan.
Fremont, once the nation's fifth-largest subprime lender, had been forced out of that high-risk business by regulators in 2007 as the mortgage meltdown took hold.
Tad Lowrey, chairman and CEO of CapitalSource Bank, is to become non-executive chairman at Pacific Western Bank. He called PacWest "the perfect partner to accelerate and expand our capacity to serve the credit needs of middle-market and small businesses."