PremierWest Bancorp in Medford, Ore., is expanding in the Sacramento area with a deal to buy the $380 million-asset Stockmans Financial Group in Elk Grove, Calif., for $91.1 million in cash and stock.
The deal, announced Monday, would give the $1.1 billion-asset PremierWest five additional branches in the area, on top of the two it already has there, and increase its Northern California branch total to 22.
John Anhorn, PremierWest’s chief executive, said that it had been looking to bulk up in the Sacramento area, because it is one of the state’s most vibrant markets.
“A lot of smaller companies are moving there from the San Francisco Bay Area, because of the congestion,” Mr. Anhorn said.
Jeffrey A. Rulis, an analyst at D.A. Davidson & Co. in Portland, Ore., said that the price, which works out to be about 2.53 times Stockmans’ book value and 16.6 times its trailing earnings, is “reasonable.”
Though California’s housing market has slowed considerably in recent quarters, Mr. Rulis noted that construction loans make up just 13% of Stockmans’ portfolio, and that it had no noncurrent loans on its books as of June 30.
Stockmans was once a Farm Credit System lender known as the California Livestock Production Association. It converted to a bank in 1991 and is the only Farm Credit lender to ever make the switch.
About 56% of Stockmans’ loans are in commercial real estate, and Mr. Rulis said that its credit quality could suffer if the slowdown in housing spills over into the overall Sacramento economy. Still, “the long-term growth prospects [in Sacramento] are very positive, and clearly PremierWest is looking towards the future.”
The deal, expected to close in the first quarter, also could lower PremierWest’s funding costs. Stockmans has a 67% loan-to-deposit ratio. PremierWest’s ratio is 108% but would drop to 98% on a pro forma basis.
Stockmans Bank would become a division of PremierWest Bank but would continue to operate under its current name. Gary Wright, Stockmans’ CEO, would become a director of both PremierWest Bancorp and its bank.
By late Monday, PremierWest’s shares had dropped 2% from Friday’s close, to $11.90. Stockmans is privately held.
