Partners key to bank buy
Behind the scenes of the Bank of Santa Barbara sale – one of the biggest to hit the city in recent years — is a team of tri-county heavyweights headed by veteran Santa Barbara banker Eloy Ortega.
Ortega assembled about 10 investors, including Kinko’s founder Paul Orfalea, Tim Marquez of Venoco and Hutton Foundation President Thomas Parker.
The deal got off the ground a few months ago, when Ortega was approached by a few investors who were interested in starting a new bank.
“I quickly squelched that,” Ortega told the Business Times. “I’m not interested in starting a new bank, especially in today’s times. I proposed that we acquire an existing bank because it would be faster and more cost-effective.”
That’s when the growing team of investors started looking for a opportunity, but they didn’t have to look very long before happening upon Bank of Santa Barbara. Ortega said it was a classic case of being in the right place at the right time.
“We’ve got a very high-profile group of local investors that have stepped up and wanted to bring this bank back into Santa Barbara,” Ortega said. “Even though the minority interest was owned locally, we wanted to bring the full interest back into the community.
“I didn’t approach the local branch,” Ortega said. “I asked [Capitol] if I could buy controlling interest, and I was put in touch with the right folks.”
Before the sale, Bank of Santa Barbara was majority-owned by Michigan-based Capitol Bancorp. Chairman and Chief Executive Officer Joseph Reid appears to have been open to Ortega’s unsolicited offer.
The exact price of the sale wasn’t disclosed, but Ortega said he agreed to a total price of 1.6 times the tangible common equity of the $62 million Bank of Santa Barbara.
“It’s a pretty complex transaction, but it’s one of those deals where both parties walk away and are not necessarily ecstatic. Neither end comes out feeling like they beat up the other guy,” Ortega told the Business Times. “We didn’t get a steal, but they didn’t end up with a whole lot of money on the table either. There are a lot of moving pieces in this deal.”
As reported earlier by the Business Times, Capitol Bancorp had been working through a string of consolidations and divestitures when it was approached by Ortega. The company’s troubles seem to have started when it posted a wider-than-expected first-quarter loss.
“Capitol has historically concentrated on the expansion and retention of affiliates,” Reid said in a statement. “However, we believe that this opportunity to return the bank to a group of local investors in the Santa Barbara community, while supporting many of our strategic objectives, will be mutually beneficial.”
Capitol said it will continue to provide data processing and back-office support functions to Bank of Santa Barbara after the transaction is finalized in the early fourth quarter.
Ortega expects a capital offering about six months after the completion of the sale. Part of that funding will help support a plan for a branch in the Montecito area. He said he would also consider expanding into the Goleta area, but “bricks and mortar are pretty expensive, so we’re going to stick with what we’ve got right now.”
Investors agreed that they would be wise to take Ortega’s advice. Before acquiring Bank of Santa Barbara, Ortega was president and CEO of City Commerce Bank and founding president and CEO of Business First National Bank.
Marquez said that although he doesn’t know much about banks, “I have known [Ortega] for many years and trust him implicitly. He has an outstanding reputation with small banks and is well-respected in the community, which is very important.”
Marquez said that when Ortega contacted him two months ago, he had already brought on Orfalea and Parker as investors.
“I’ve known Eloy for a long time, and I’ve always thought that he runs a great bank,” Parker said. “He’s got the formula down for how to create a nice little community bank.”
Ortega knows he has a winning recipe, and he’s not looking to change the mix for Bank of Santa Barbara.
“There are going to be a lot of similarities,” Ortega said, promising the latest in technology and a focus on customer service. “My model is to focus on client services, and it’s a model that’s worked for me and my prior banks, and I think it’ll work here. It’s an easy way to do business, but it’s hard to get there.”
Though Ortega said it was a little premature to be talking about staffing changes, he plans to bring in a few new board members.
“The corporate board members – the ones that are really representing Capitol Bancorp – will be resigning,” Ortega said. “We expect to end up with nine outside directors, but we hope to retain the existing board and staff because that’s really who built the organization. We want to build upon what they’ve already created, not tear it down and start over.”