$231M First California sale shakes up bank ranks
With the Tri-Counties’ two largest banks being acquired by bigger players, the regional lending landscape is shifting dramatically away from community financial institutions.
Los Angeles-based PacWest Bancorp said Nov. 6 that it is buying First California Financial Group for $231 million in an all-stock deal. At $8 per share, PacWest’s bid represents an 18.5 percent premium over First California’s pre-merger share price. Branch consolidations will cut costs substantially and make the deal profitable, PacWest said.
The merger also comes on the eve of Union Bank’s $1.5 billion purchase of Santa Barbara-based Pacific Capital Bancorp, a deal that’s expected to close before the end of the year.
The proposed PacWest and First California merger comes after months of tense negotiations between the rival banks. PacWest offered $7.25 per share for First California in an unsolicited bid made public in May. That buyout offer was rebuffed. First California CEO and President C.G. Kum told the Business Times at that time that the Los Angeles lender had wanted an exclusivity agreement that would have precluded him from talking to other potential buyers.
But after spurning the takeover bid, First California came under increasing pressure from several large investors who said the bank had not done enough in recent years to increase shareholder value. At least one major investor threatened to oust First California’s board if it did not reconsider the offer.
The two banks said Nov. 6 that the deal is expected to close in the first quarter of 2013. First California Bank would be merged into Pacific Western Bank and headquartered in Los Angeles.
A spokesman for First California declined to comment beyond a written statement announcing the merger. PacWest CEO Matt Wagner did not return a call seeking comment.
In investor presentation documents on Nov. 6, PacWest said the deal presents an “attractive in-market consolidation opportunity [that] strengthens our competitive position as one of the premier Southern California community banks.”
The two banks have “considerable branch network overlap,” it said, with 11 of First California’s branches within five miles of PacWest branches. That means PacWest can save an estimated $31.5 million by consolidating many branches and adding First California’s $1.6 billion in deposit accounts and $1.2 billion in loans to its books. In the Tri-Counties, the areas of overlap appear to be Camarillo, Ventura and San Luis Obispo.
The deal is expected to add 12 percent to earnings in its first full year, PacWest said.
“The resulting banking franchise will possess the capital resources, scale, management team and financial strength necessary to thrive in the current competitive environment,” PacWest said in investor documents.
First California is the second-largest bank based in the Tri-Counties, with just under $2 billion in assets as of Sept. 30. It has 15 branches in Ventura, San Luis Obispo, Los Angeles, Orange, Riverside, San Bernardino and San Diego counties, many of which were acquired through Federal Deposit Insurance Corp.-assisted deals.
PacWest, meanwhile, has been an aggressive new player in the Tri-Counties in recent years, starting with its 2009 acquisition of failed Affinity Bank. In 2010, it purchased Solvang-based Los Padres Bank in another FDIC-assisted purchase. And earlier this year, PacWest purchased San Luis Obispo-based American Perspective Bank for $58.1 million. Since 2000, PacWest has completed 25 acquisitions or mergers, according to its filings.
The banks said the combined institution will be the eighth-largest publicly traded bank based in California and the 12th-largest commercial bank in the state, out of more than 240 lenders.
The banks said the directors of both PacWest and of First California have unanimously approved the deal. First California shareholders that own 22 percent of the company’s outstanding shares have also agreed to vote in favor of the deal, the banks said.
Two independent directors from the board of directors of First California would join PacWest’s board of directors after the merger closes.
First California shareholders will receive PacWest common stock in exchange for their shares of common stock in the Westlake Village-based lender. First California shareholders are expected to collectively own about 22 percent of the combined bank.
Shares of First California closed up 12.6 percent to $7.60 on Nov. 7. Shares of PacWest slipped 0.5 percent.
A changing landscape
The proposed merger rounds out a year of shifts in the region’s banking landscape.
The $1.5 billion acquisition of Santa Barbara Bank & Trust parent Pacific Capital is expected to close before the end of the year and will mark the end of a 52-year-old brand name sometime in 2013.
“There are not very many banks of our size, over $1 billion,” said Janet Garufis, president and CEO of Santa Barbara-based Montecito Bank & Trust. When the two big deals close in coming months, Montecito Bank & Trust will be the largest bank based in the Tri-Counties.
“The majority of community banks are under $500 million in assets,” Garufis said. “I think what you can expect to see with increased regulations and given the resources required to do the kinds of things the regulators want banks to do, it’s going to be harder and harder for the small banks to be profitable. … I expect to see much more consolidation in the banking industry.”
Over the last four years, the Tri-Counties have gone from having 20 regionally based banks to the current 15.