Almost a year to the day after its bold attempt to acquire a Farm Credit System lender fell through, Rabobacnk Group resumed its U.S. expansion drive with a $371 million cash deal for Central Coast Bancorp in Salinas, Calif.
The giant Dutch banking company said Thursday that it plans to merge the $1.3 billion-asset Central Coast into its El Centro subsidiary to create a $4 billion-asset, 37-branch operation stretching from California’s central coast to the Mexican border.
Cor Broekhuyse, Rabobank’s regional head for the Americas, said Thursday that the deal would strengthen its position in agribusiness lending and expand its retail banking — the two goals it has set for its U.S. operations.
“We’re known for agriculture, but Rabobank is also the biggest retail bank in the Netherlands, and we want to replicate that combination here,” Mr. Broekhuyse said. “It makes lot of sense. We want to serve the farmers and the community around them.”
Rabobank has been lending to U.S. agribusinesses for more than two decades, but it embarked on a major drive to expand its retail operations here about four years ago.
It gained a significant foothold in California in late 2002 when it bought the $1.2 billion-asset Valley Independent Bank, which it renamed Rabobank NA this year. In 2003 it acquired two nonbank agribusiness lenders: Lend Lease Agribusiness Inc. in St. Louis in September, and Ag Services of America in Cedar Falls, Iowa, the following month.
Most of Central Coast’s $915 million-asset loan portfolio is agriculture-related, but Nick Ventimiglia, its chairman and chief executive officer, said the rapid growth in central California’s population and economy presents opportunities to expand in real estate construction, commercial real estate, and other business lines.
“We’re seeing a big increase in demand, and with Rabobank behind us, we’ll be able to meet that and compete for larger agricultural deals,” he said.
The deal is expected to close next quarter. Mr. Ventimiglia would join Rabobank NA’s board.
The only U.S. state in which Rabobank Group offers retail banking is California — the nation’s largest agricultural state — but Mr. Broekhuyse said it would like to expand into states east of the Rocky Mountains.
It tried to do that last year when it struck a $600 million deal for Farm Credit Services of America, an $8 billion-asset Farm Credit System lender in Omaha. Rabobank was forced to abandon the bid 10 weeks later, after it ran into opposition from lawmakers and other lenders in the government-sponsored Farm Credit System.
Had Rabobank’s acquisition of Farm Credit Services of America gone through, it would have been the first time a Farm Credit System lender had sold itself to a commercial bank.
Aside from rebranding Valley Independent Bank, Rabobank has been raising its profile in the United States by running print and radio advertisements aimed at farmers and buying the naming rights to Bakersfield’s convention center.
Kenneth S. James, who covers Central Coast for First Horizon National Corp.’s FTN Midwest Research Securities Corp. in Nashville, called the $371 million price rich, but he said that Central Coast, the parent of Community Bank of Central California, was a “very good” bank.
“Central Coast is highly profitable,” he said. “They’ve got a great net interest margin, no credit issues, and a solid core deposit franchise.”
Mr. James said he did not have the company pegged as a seller, because its performance has been so strong, but he also said that Rabobank’s $25-per-share cash offer — a 29% premium — was “something you can’t walk away from.”
John M. Blanchfield, the director of the American Bankers Association’s Center for Agricultural and Rural Banking, said Rabobank’s ongoing expansion poses a major challenge for smaller farm banks.
“The implications of this are more and tougher competition, but I have a lot of faith in community banks’ ability to respond,” he said. “Farmers are like everybody else. They like decisions to be made locally. We’ll have to see if Rabobank is flexible enough to adapt to the local conditions.”
Central Coast investors were certainly pleased with the deal. Its stock was up 25% in late trading Thursday, to $24.30.
