Rabobank Group, which announced a plan to continue its expansion in California, became the third non-U.S. banking company to announce a bank deal in the United States this week.
The Dutch giant said Thursday that its California unit, Rabobank NA, plans to acquire the $2.4 billion-asset Mid-State Bancshares of Arroyo Grande for $851 million in cash.
The deal, Rabobank's largest in California, was announced 11 months after the $650 billion-asset Utrecht parent company completed its deal to acquire the $1.3 billion-asset Central Coast Bancorp of Salinas.
Cor Broekhuyse, the chairman of Rabobank NA and the parent company's regional head for the Americas, said it is pursuing acquisitions in an effort to nearly triple its U.S. assets, to $15 billion in three to five years.
The company is likely to have company in the merger and acquisition game, he said.
"Many European banks at this moment would like to be involved in the further consolidation that will undoubtedly happen in the next decade" in the United States, Mr. Broekhuyse said.
Royal Bank of Scotland Group PLC already has significant operations in the United States. Its Citizens Financial Group Inc. of Providence, R.I., ended a two-year absence from the M&A game Monday by unveiling a $180 million cash deal to acquire the $1.2 billion-asset GreatBanc Inc. of Lisle, Ill.
On Wednesday, Royal Bank of Canada's RBC Centura Bank in Raleigh said it would buy 39 Alabama branches that AmSouth Corp. was required to sell to get government clearance for its deal with Regions Financial Corp.
The deal for the branches was announced just two months after Royal Bank of Canada announced a $456 million deal in the Atlanta market for Flag Financial Corp., its first in the United States after a three-year hiatus.
Mr. Broekhuyse said that Rabobank's deal for Mid-State "gives us a doubling of our branch network and a nice coverage of the southern part of California." Rabobank provided lending services in California for years before completing its first deal there, for Valley Independent Bank in El Centro in 2002. (Valley Independent was renamed Rabobank NA.)
Mid-State's 41 branches would expand Rabobank's reach in the state from the Mexico border to just south of the San Francisco Bay Area. Like Rabobank's two previous California acquisitions, Mid-State serves rural communities. Its branches and seven loan offices are in three coastal counties - San Luis Obispo, Santa Barbara, and Ventura, which stretch from north of Los Angeles to near Salinas, where Rabobank acquired Central Coast Bancorp early this year.
Mr. Broekhuyse said he plans to spend the coming months integrating the deal, which is set to close in the second quarter. However, "over time we will get back into the market, because we want develop a substantial retail banking presence in California."
As of June 30 Rabobank had $2.7 billion of California deposits, or a market share of 0.37%, the state's 30th-largest, according to figures the Federal Deposit Insurance Corp. released last month. After buying Mid-State, with $2 billion of deposits, or a market share of 0.27%, Rabobank would have the 21st-largest share.
Rabobank's lending is heavily focused on agriculture, which makes up 40% of the portfolio, and commercial real estate, which makes up 35%. Small and midsize business loans make up 25%.
Mid-State is a much smaller player in agricultural lending. Such loans make up 5% of its portfolio, while commercial real estate makes up 37%, construction 18%, consumer loans 11%, and single-family residential real estate 14%.
"Mid-State is a franchise that has a very low-cost deposit base, which obviously makes sense at this stage in the cycle for a buyer to pick up, but it is a very slow growth stock," Matthew T. Clark, an analyst at Keefe, Bruyette & Woods Inc., said in an interview Thursday.
The deal was not surprising, he said, since Mid-State's earnings for this year likely will drop 2% from last year, and they would likely grow slowly next year.
Mr. Broekhuyse said Mid-State's deposit base was an attractive element of the deal. "We have grown our assets very strongly, so to have a very good deposit generator included in our business is for us very important."
Analysts said that Rabobank would pay a steep price for Mid-State - a 23% premium over its average stock price over the past month - and that the price perpetuates the image that European companies tend to pay more for U.S. banks than U.S. acquirers and are less interested in cutting costs.
Mr. Broekhuyse said that the price was fair, but he acknowledged that what helped bring Mid-State to the table was the fact that Rabobank is not seeking cost cuts and would retain its management team.
Brian R. Sterling, the co-head of investment banking at Sandler O'Neill & Partners LP, said the recent deals show foreigners are clearly interested in the growth opportunities in U.S. banking.
Rabobank announced its latest deal at a time when U.S. banks are dealing with rising funding costs as depositors move money to higher-yielding investments, Mr. Sterling said. "With this operating environment, you're seeing more sellers and more potential sellers."
