February 7, 2023
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Dubroff: Merger writes next chapter for Central Coast banking


Henry Dubroff

Henry Dubroff

The $405 million sale of Heritage Oaks Bancorp to Pacific Premier Bancorp caught many experts by surprise. It is a transformative deal for the Irvine-based buyer, which will grow from $3.8 billion to $6 billion in assets when it closes next year.

Pacific Premier will extend its franchise, leapfrogging past Los Angeles and heading deep into the Central Coast. As an all-stock deal, it will give Heritage Oaks shareholders a path forward or, as veteran banker Carrol Pruett put it, “a good horse to ride.”

But it also is illustrative of the new rules in the banking game for the 21st century, with profound impact on the region and our financial system. Here is a closer look:

• Communities will have to adapt to life without locally based banks. For the first time in well over a century, San Luis Obispo County will not have a commercial bank that’s fully rooted in the county. That’s an enormous change from 20 years ago when a handful of independent banks and thrifts competed in downtown SLO and Mid-State Bank & Trust, based in Arroyo Grande, was one of the largest banks on the Central Coast. It’s hard to imagine a de-novo bank starting in the Dodd-Frank era, so for now SLO County has reached the end of the “It’s a Wonderful Life” era.

• The last banks standing will be in control of their destinies. The region’s five independents, Montecito Bank & Trust, Community West, American Riviera, Ojai Community Bank and Community Bank of Santa Maria are well capitalized, big enough to meet regulatory standards and face no pressure to exit. They have locally-rooted franchises that are growing in value and are likely to be able to weather the next recession. Montecito Bank & Trust and Community West have indicated they want to remain independent, so it may be a while before the next deal comes along.

• Credit unions are emerging as alternatives for consumer banking. Once the Heritage Oaks deal closes, SESLOC Federal Credit Union, with some $800 million in assets, will be the largest financial institution based in SLO County. Coast Hills and Ventura County Credit Union are also in the top ranks.

SESLOC CEO Geri LaChance told me during a chat on Dec. 12 that SESLOC’s mortgage loan volume is running at $8 million a month.

As a bank that’s been focused on financing businesses, Pacific Premier will get a look at the mortgage business when it takes over Heritage Oaks. Whether it will remain in the home financing segment is under study, officials said on a post-merger announcement conference call.

• Larger incumbents may get a window of opportunity. The sale of Heritage Oaks will result in inevitable cost cutting and, if the past is any guide, a bidding war for talent.

The merger announcement made a point of noting that key staff will remain and that three key members of the Heritage Oaks board will join the Pacific Premier board. But this is an opportunity for Rabobank, which bought Mid-State and went through a series of restructurings, to attract new business in its SLO County stronghold. It also creates an opportunity for regional and national banks, some of them new to the area, to court new customers and staff.

In the slow growth environment that we have on the Central Coast, any change in the banking landscape can create unexpected opportunities.

The bottom line is that the economies of the Central Coast are relatively strong from a state and national standpoint. That attracts capital and the Pacific Premier-Heritage Oaks transaction is, in effect, a $405 million bet on the future of the region.

• Reach Editor Henry Dubroff at hdubroff@pacbiztimes.com.