With its deal for Summit Bank Corp. of Atlanta, San Francisco's UCBH Holdings Inc. would gain a foothold in two more cities with fast-growing Asian-American communities - and perhaps accelerate its expansion plans in China.
UCBH, which largely caters to Chinese-Americans, said Tuesday that it is buying the $657 million-asset Summit for $175.5 million in cash and stock.
The $8.3 billion-asset UCBH would pick up five branches in Atlanta and one in Houston, which Summit entered this year when it bought Concord Bank. Summit also has branches in San Jose and Fremont, Calif.
"This acquisition makes a lot of sense for us, because we've been trying to expand in areas where there is a high concentration of Asian-Americans," Thomas S. Wu, UCBH's chairman, president, and chief executive, said in an interview Tuesday. "By doing this deal, we get into both Atlanta and Houston at the same time, which fits perfectly with our strategy."
Lana Chan, an analyst at Bank of Montreal's BMO Capital Markets in New York, said UCBH would have plenty of room for organic growth in Georgia and Texas. Asian-Americans make up 2.6% of Georgia's population, according to 2004 census data, and Texas has the country's fourth-largest Asian-American population.
Summit also has a strong international trade finance business, with a representative office in Shanghai. UCBH, the parent of United Commercial Bank, has a branch in Hong Kong and representative offices in Shenzhen, China, and Taipei, Taiwan.
The Chinese government requires that foreign buyers of Chinese banks have assets of at least $10 billion. Thomas J. Monaco, an analyst at Sterne, Agee & Leach Inc., said that buying Summit would put UCBH just $1 billion short of that threshold and that it should now reach it by the end of 2007 - about 18 months sooner than it had anticipated.
"There is a lot of growth coming out of China, and UCBH really wants to capitalize on that," Mr. Monaco said.
Mr. Wu has made no secret of the company's plan to buy a Chinese bank, but its more immediate focus is on bulking up in the United States. Facing increasingly stiff competition from Asian-American banks in its home state, it has bought banks or branches in Asian-American communities in or near Seattle, Boston, and New York in the past four years.
UCBH is not getting Summit on the cheap; the price is three times Summit's book value and 26.8 times its trailing earnings. But Ms. Chan said the price is reasonable given Summit's market share in Atlanta's Asian-American community and its healthy profits.
Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Securities Research Corp. in Nashville, said that buying Summit may add value in the long run but that the high price would prevent the acquisition from being materially accretive to UCBH's earnings in the near term.
Asian-American banks used to be much more reasonably priced - at or under two times book, Mr. Rabatin said. But sellers' expectations - and asking prices - have shot up over the past several years as competition has intensified between buyers, mainly the three largest Chinese-American companies based in California: UCBH, the $7.5 billion-asset Cathay General Bancorp in Los Angeles, and the $10 billion-asset East West Bancorp in Pasadena.
Those companies have been racing to make acquisitions outside California. Last year UCBH and Cathay were locked in a battle for Great Eastern Bank in New York. Cathy ultimately won in February - but so did Great Eastern's shareholders, as the bank sold for 2.9 times tangible book.
Mr. Rabatin said he expects prices to keep rising as the three California companies duke it out for more banks in other markets. "But that's going to make it more difficult for all of them to do these deals on an accretive basis," he said.
UCBH said in its announcement that it expects the Summit acquisition to be marginally accretive to 2007 earnings per share. UCBH would issue about 4.8 million shares of stock and pay $87.4 million in cash and about $800,000 related to the cash-out of outstanding Summit stock options.
The deal is expected to close in the first quarter of 2007; Summit National Bank and Concord Bank in Houston would then be merged into United Commercial Bank.
