An Acquisitive California Banker Bucks Conventional Wisdom on Deposits

Opus Bank's chief executive is hungry for more acquisitions after his branch deal this week in California.

"I've bought three banks in the last year," says Stephen Gordon, the chairman and CEO of the $2.4 billion-asset bank in Irvine. "We're going to continue looking at banks, and continue looking at commercial finance companies."

Opus' agreement Monday to acquire 10 branches and $145 million of deposits from PacWest Bancorp (PACW) of Los Angeles is sort of a M&A stopgap for Opus, which Gordon — a former investment banker — helped put together in 2010 after selling the California bank he used to run to Washington Mutual four years earlier.

Though whole-bank deals produce better returns, they are hard to find at good prices right now. The upside of branch deals is that they are simpler, less risky and close faster.

Buying branches also tends to be cheaper and more efficient than opening new ones, as new branches tend to take a couple of years to break even.

Paying a 2.5% deposit premium for the PacWest branches would achieve other financial and strategic ends, Gordon says. Most of the deposits it would acquire are business transaction accounts that pay lower rates than Opus' deposit accounts.

That means it would acquire cheaper funds and lot of potential new borrowers, he says.

"This gives us deeper distribution in L.A. County [and] Orange County. It gives us a presence in San Bernadino and Riverside, which we didn't have," Gordon says. "It'll bring down our deposit costs, our funding costs."

After the deal closes, Opus would have 57 branches, 34 in California and the rest in Washington state.

Gordon is veteran banker blessed with good timing and good luck in California. He ran and sold Commercial Capital Bancorp for nearly $1 billion in cash to Washington Mutual in 2006.

He launched Opus in 2010 by leading the investor group that recapitalized and renamed a small franchise in Los Angeles called Bay Cities National Bank. He bulked it up with two other purchases last year: a 22-branch outfit outside Seattle called Cascade Financial, and the eight-branch Fullerton Community Bank near Los Angeles.

Most banks are eager to acquire assets, but Gordon says acquiring deposits makes good sense because they are cheap.

"Everybody is paying significant premiums for high-quality loans, assets," he says. "Prices on assets have been going up."

"We're buying [deposits] at very attractive levels. … At some point or another rates will rise and core deposits are going to become very important," he says. "I'd rather be doing this now when things basically cost [less] money."

Many banks describe deposits as a burden these days, Gordon acknowledges. "For us it is not," he says. "For others it may be. We're funding a lot of loans. … If you aren't lending, which a lot of banks in the U.S. are not, deposits are simply an expense."

Opus Bank is originating about $100 million in predominantly commercial loans a month, he says. Its net loans increased about $4 million, or less than 1%, to $1.6 billion in the first quarter from yearend, according to regulatory data.

Gordon has an unusual background for a commercial banker. Before his Commercial Capital days, he ran his own hedge fund and was a partner with Sandler O'Neill & Partners. He spent seven years at Sandler, advising banks on asset restructurings and funding strategies.