In previous acquisitions, East West Bancorp Inc. in Pasadena, Calif., has bought companies that, like itself, largely target Chinese-Americans in the Los Angeles area.
But its deal for Desert Community Bank in Victorville is a departure from that strategy; the $533 million-asset bank has no particular ethnic focus, and its branches are located well inland, in the state’s High Desert region.
The $10.8 billion-asset East West announced late Tuesday that it would buy Desert Community for roughly $142.6 million in cash and stock, or $24 a share.
Dominic Ng, East West’s chairman, president, and chief executive officer, said Desert Community would be a good fit, because it is “the largest and most dominant bank in the High Desert area,” which is “a faster-growing area than the more mature cities.”
The deal also represents an opportunity for East West to diversify further. As competition among Asian-American banks has intensified of late, particularly in Los Angeles, East West has been pursuing commercial business from non-Asian customers.
East West has 63 branches, mostly in Los Angeles and Orange counties. It has a handful in Northern California and a Houston one it inherited in 2005 with its purchase of United National Bank in San Marino, Calif.
The 27-year-old Desert Community would be the sixth bank East West has bought since 2000, but only the second that does not target Asian-Americans. In 2001 it bought the $110 million-asset Prime Bank, a commercial bank in Los Angeles.
East West opened its first branch in San Bernardino County in February, and buying Desert Community would give it nine more there. In an interview, Mr. Ng said East West would not stop there. “We do not want it to just be nine branches. We want to expand our reach in the region.”
Joe Morford, an analyst at Royal Bank of Canada’s RBC Capital Markets, said it makes sense that East West would want to expand in what “has been one of the fastest-growing regions in the country for years.”
The growth has been driven by the low cost of land, which attracted new residents and sparked industrial development, he said.
East West’s expansion into the High Desert area also could give its trade finance business a boost.
The High Desert area has emerged as a thriving distribution center for international trade and, like other Asian-American banking companies based in California, East West has significant international trade finance operations. Many of its business customers — both Asian and non-Asian — are importers or exporters trading overseas, particularly in Asia.
Unlike with previous acquisitions, East West would not rebrand Desert Community immediately. Instead, the bank would operate as a separate division, with its own name and management team.
Desert Community already has “a strong brand name in the High Desert,” Mr. Ng said. “It would take us a very long time to get the recognition” if East West rebranded the branches.
Also, Ronald L. Wilson, Desert Community’s chairman, president, and CEO, is a well-known, well-connected figure in the region’s banking industry, with his own television show and a regular column in the local newspaper.
“He’s an extremely active member” of civic organizations and the community, Mr. Ng said.
Mr. Morford agreed. “To that community, East West doesn’t really mean anything,” he said. “Why give up all that brand equity when they don’t really need to?”
Mr. Ng said he would consider rebranding Desert Community in the future, after East West became more well known there.
Desert Community has the No. 12 deposit share in San Bernardino County, roughly 2.8%, according to Federal Deposit Insurance Corp. data.
Christopher Nolan, an analyst at Oppenheimer & Co., said it is more significant that the bulk of the deposits are low-cost. As of Dec. 31 core deposits made up 86% of Desert Community’s $462 million deposit base, according to an East West press release announcing the deal, which is expected to close next quarter.
Desert Community “is a core-deposit-rich franchise, and that’s exactly the kind of funding source you are looking for to leverage with loans,” he said.
Mr. Morford said that since Desert Community’s efficiency ratio — 65.45% as of Dec. 31 — is above the average for companies its size, East West should be able to engineer some cost savings. He estimated the cost savings at “upwards of 25% — that seems pretty achievable just through back-office consolidation.”
And at 2.55 times Desert Community’s book value, the price “falls on the lower end of the pricing of other deals made out here in the West,” he said.
Desert Community’s shares climbed 20% on news of the deal, to close at $23.15. East West’s shares rose 0.5%, to $40.16.
