APPETITE FOR CONSUMPTION
Big Banks Have Long Found OC Fertile Ground for Acquisitions
By ANDREW SIMONS
The sun rises, the tides flow and banks consolidate,at least here in Orange County.
For the past decade or so, the trend for OC-based banks is to start up, grow for several years and then get bought by larger banks.
Just take a look at the past few months: Newport, Minn.-based American Bancs-hares Inc.’s $10.9 million buy of Santa Ana-based PriVest Bank closed in January. And Rancho Santa Fe-based First Community Bancorp’s offered to buy Newport Beach-based Harbor National Bank for about $35 million in cash late last year. That buy is set to close in the second quarter.
The sale price in the Harbor National deal was about 42 times earnings, the highest premium to earnings ever for an acquisition in OC, says Ed Carpenter, chief executive of Irvine-based Carpenter & Co., an investment bank that specializes in tracking and advising community banks.
“What that tells you is the intrinsic value of an Orange County bank,” says Carpenter. “I think a number of investors are betting somewhere down the road they’ll be valuable acquisition targets.”
OC-based banks also have shown they aren’t averse to making their own buys.
Last month, for instance, Irvine’s Commercial Capital Bancorp said it planned to buy El Segundo-based Hawthorne Financial Corp. for about $500 million in stock.
Meanwhile, OC has several banks that could be ripe for the picking. The Business Journal takes a look at a few:
Pacific Mercantile Bancorp
The perennial No. 1 OC-based bank by assets, Costa Mesa-based Pacific Mercantile has an attractive acquisition profile: seven branches in the lucrative Southern California market; almost $700 million in assets; a strong Internet banking presence; and services that include securities trading to mortgage lending.
Despite being founded five years ago, Pacific Mercantile is mature. In November, the bank said it was offering more shares to raise money for a branch expansion into the Inland Empire, the South Bay area and the San Fernando Valley.
Pacific Mercantile has an unusual strategy.
“Our point of view on growing the bank is by putting in branches, and encourage customers to bank online,” said Raymond Dellerba, Pacific Mercantile’s chief executive officer. Dellerba doesn’t want all business done online, but says it’s an efficient way to offer many services.
The plan seems to be working,the bank announced that its assets grew to $657 million in the September quarter, up 40% from the same quarter a year ago. Net earnings for the nine-month period ending in September grew 250% to $1.8 million, versus a year earlier.
“With the growth of our banking franchise, we should be well positioned to take advantage of the apparent improvement in the economy,” said Dellerba.
Pacific Mercantile’s mortgage lending business was a strong contributor to the bank’s third quarter results.
So would Pacific Mercantile entertain offers from suitors?
“Our point of view right now is to grow the bank,” Dellerba said. “The whole management team has been growing the bank here by putting in branches. We’re only putting in a couple more branches and then we’re done. So then what we’d like to do is bring the earnings up.”
In fact, Pacific Mercantile could be closer to making an acquisition of its own rather than being bought,at least for now.
“We would love to buy a bank in the San Fernando Valley or San Diego,” Dellerba said. “We’re looking to expand in those two markets.”
Premier Commercial Bank
Premier Commercial is following a familiar pattern among Orange County’s homegrown banks: rapid asset growth.
The Anaheim bank busted through the $100-million-in-assets mark in 2003, up from $79 million in 2002.
“One hundred million is considered the ‘magic number’ in the industry,” said Ash Patel, Premier’s president and chief operating officer. “It generally doesn’t happen for the first three years, and banks typically aren’t profitable until they reach that magic number. I’m pleased to say that Premier has been profitable since the third quarter of our first year.” The bank was founded in 2001.
With its fast growth, banks such as Premier could be prime targets for larger banks. Growth has been driven in part from its work with hotels and other businesses around the Disneyland Resort.
Commercial real estate and business loans also have helped.
Also, Premier has made a stab at Small Business Administration lending. With interest rates,and, consequently, interest income,at a low, Premier and others have turned to SBA lending as a way to bring in more revenue.
Uniti Bank Corp.
It might be a young bank, but it could be an interesting acquisition.
Uniti, which opened in 2001, targets North County’s large Korean American community. The bank provides service in Korean and other special services. That could make it an attractive buy for a foreign-owned bank or U.S.-based one that wants to diversify.
The bank had $63 million in assets at the end of the third quarter, up from $44 million at the end of 2002. Those are solid numbers, according to Uniti. “We are exceeding our goals on total assets,” said Chief Executive William Bongkee Im in an interview last year. Uniti also posted net income of $217,000 for the first three quarters of 2003, versus a loss a year earlier.
Uniti got the green light to become a Small Business Administration lender last year. That lets the bank make small-business loans instead of going to a certified small-business lender.
With interest income at a low, Uniti moved into SBA lending as a way to bring in more revenue. Uniti also does real estate lending.
North County, with scores of smaller manufacturers, auto shops and liquor stores, is ripe for banks targeting businesses overlooked by big banks, Im said.
“There are some cracks between some of the major banks,” he said.
Sunwest Bank
Would Sunwest Bank, part of Tustin-based West Coast Bancorp, ever sell? After all, the 34-year-old institution is OC’s oldest homegrown bank.
Not likely, according to the company.
“We’re continuing to look at acquisitions of our own,” said Sunwest Chief Executive Marshall Laitsch in the fall. “We would like to grow this bank.”
Washington, D.C. financier Eric Hovde, who owns most of the bank and is chairman of West Coast Bancorp, has long said he has no interest in selling his OC banking interests. Hovde also owns investment bank Hovde Financial LLC in Washington.
When Laitsch joined the bank in March, he made it a priority to boost the bank’s business lending.
Sunwest faces competition for business lending from big competitors, such as Wells Fargo & Co., Bank of America Corp. and California Bank & Trust. Others such as Costa Mesa’s Commercial Bank of California, Premier Commercial and Pacific Mercantile also aggressively compete for loans.
Asset growth has picked up under Laitsch. The company counted $311 million in assets at the end of September, up 14% from the end of 2002. For 2002, the company had 3% growth in assets.
“It always really comes down to people,” Laitsch said in an earlier interview. “The bank simply wasn’t taking advantage of the growth opportunities in Orange County.”
