Placer Sierra Bancshares of Sacramento took a big step toward its goal of building a statewide operation, and expanding its Small Business Administration lending, by making a deal to buy Southwest Community Bancorp of Carlsbad, Calif.
The $175 million all-stock deal, announced Thursday, would move Placer Sierra into the San Diego market, where the 8-year-old Southwest has five branches under the name Southwest Community Bank. The $657 million-asset Southwest has a 1% share of the area's $47 billion deposit market, according to the most recent available data from the Federal Deposit Insurance Corp.
The deal is expected to close June 30 and would raise Placer's branch total to 49 and its asset total to about $2.7 billion.
Ronald W. Bachli, the chairman and chief executive of the $1.9 billion-asset Placer, said on a conference call Thursday that buying Southwest would also boost its SBA lending operations.
Placer has been trying to do more such lending; this quarter, a spokesman said, it hired a group of SBA lenders from Bank of the West in San Francisco. Buying Southwest, one of the largest SBA lenders in San Diego County, would significantly accelerate the growth of that business line, Mr. Bachli said.
Southwest made $76 million of loans under the SBA's 7(a) loan program during the federal government's 2005 fiscal year, compared with Placer's $3 million.
"We would expect their underwriting and servicing group to take over our operation and enhance it," Mr. Bachli said.
Placer intends to keep Southwest's SBA loan production offices in Illinois, Utah, and Virginia, he said.
The deal would also boost Placer's net interest margin, since 70% of Southwest's $595 million deposit portfolio consists of noninterest demand deposits, Mr. Bachli said.
Frank Mercardante, Southwest's CEO, said in a press release, "We believe our deposit franchise and Placer Sierra's asset-gathering abilities creates a powerful combination."
Since breaking even for the first time in the first quarter of 2000, Southwest has steadily increased its profits. Last year it earned $10 million, and its return on average equity was 18.8%, well above Placer's 12.5% and the 14.6% average for commercial banks with $500 million to $1 billion of assets, according to the FDIC.
Placer has said in the past that it would like a statewide franchise, and on Thursday it said buying Southwest would fill a big gap in southern California.
"Obviously, we're very excited about this," Mr. Bachli said. "We're getting an extraordinarily good group of people."
His company does not yet have branches north of Sacramento or across a broad swath of central California.
The $175 million price works out to $38.97 for each share of Southwest, or 21 times its operating earnings and 3.5 times its book value. Placer said that it expects to cut Southwest's noninterest expenses by 42%, and that the deal would be accretive to earnings within the first year after it closes.
