Sierra Bancorp is placing a $15.3 million bet on the agricultural bounty of Ventura County.
The Porterville-based parent company of Bank of the Sierra said July 17 that it is purchasing Santa Paula-based Santa Clara Valley Bank in an all-cash deal that includes three branches and $105 million in deposits. The deal gives the Central Valley bank, a major agricultural lender, a foothold in Ventura County, which has seen the value of its crops and livestock climb to $2 billion annually in recent years.
“We do a lot of agricultural lending,” Sierra Bancorp President and Chief Operating Officer Kevin McPhaill told the Business Times. “Ventura County is a really nice market for us, not only in the sense that it’s really rich in agriculture, especially with its citrus and avocado crops, but also its proximity to our existing markets.”
Santa Clara Valley Bank operates branches in Fillmore, Santa Paula and Valencia. With assets of about $127 million, the bank is the second-smallest bank headquartered in the Tri-Counties.
Sierra Bancorp is the $1.5 billion parent company of Bank of the Sierra. It has primarily served California’s Central Valley thus far.
Sierra Bancorp has 25 branches in California and operates real estate and agricultural lending centers in the state, as well as a Small Business Administration loan center in the Central California region. Its closest branch is about 80 miles away in Bakersfield, McPhaill noted, and the bank hopes that acquiring the Santa Clara Valley operations will provide a launchpad to other markets in Ventura County and later, perhaps, Santa Barbara or San Luis Obispo counties.
The acquisition, which has been approved by the boards of both banks, includes $12.3 million in cash, or $6 per share, to Santa Clara Valley Bank’s common shareholders, and $3 million to preferred shareholders to retire outstanding preferred stock and warrants.
“This was by far the best offer we received,” Santa Clara Valley Bank President and CEO Cheryl Knight told the Business Times. “It’s an all-cash deal, so there’s very little risk for shareholders.”
Executives from both firms said they hope to close the deal by the end of the fourth quarter. The transaction still needs regulatory approval and the go-ahead from Santa Clara Valley Bank’s shareholders.
The proposed purchase price represents 109 percent of Santa Clara Valley Bank’s book value as of March 31, Sierra said. Santa Clara Valley Bank shares, traded over the counter, closed at $4.72 on July 17 before the deal was announced. The bank’s shares shot up to $5.70, a 20.8 percent surge, in midday trading on July 18.
As a much larger institution, Sierra Bancorp will be able to bank bigger businesses, including larger farming operations that the Ventura County lender has thus far had to turn away, the firms noted.
“Our lending limits are of course much higher than Santa Clara Valley’s,” McPhaill said. “For example, if somebody wants to buy a building and it’s in the $5 million to to $10 million range, that’s right in our wheelhouse.”
And larger banks are better able to spread the costs of regulatory compliance and new technologies across their branch network.
“The regulatory costs for banks have just ballooned over the past five or six years, and the expectations for what a small bank has to do to stay in compliance have, in my opinion, become unnecessarily burdensome,” Knight said.
“That’s a concern: How the small banks survive and make money. If we had a more robust recovery that would have helped, too.”
Santa Clara Valley Bank lost $153,000 in 2013 after turning a $558,000 profit in 2012.
The bank has 38 full-time equivalent employees, according to its regulatory filings. Executives from the two firms said the vast majority of customer-facing positions such as tellers and loan officers will be preserved through the transaction.
But Sierra expects to gain some cost savings by merging Santa Clara Valley Bank’s administrative operations into its own. That likely means some layoffs at the smaller bank’s Santa Paula headquarters.
“Culturally, our two banks are very closely aligned. We see this as a natural extension for us,” McPhaill said. “We don’t have branches in that area. So we’re not closing branches, and we’re going to need all those people to continue to serve customers.”