Sierra West Buying Neighboring Bank

A Northern California bank is buying a deposit-rich neighbor to fund its small-business lending operation in Sacramento.

Truckee-based SierraWest Bancorp has agreed to pay $6.6 million in cash and stock to acquire $45 million-asset Mercantile Bank, a Sacramento business bank.

The transaction would enhance $448 million-asset SierraWest's presence in downtown Sacramento and boost its deposits there to $85 million. SierraWest maintains operations in the state capital, as well as throughout the Lake Tahoe region and in Reno.

SierraWest's decision to buy tiny Mercantile reflects a problem hitting a number of other community banks-strong loan growth but a lack of deposits, said Campbell K. Chaney, analyst at Sandler O'Neill & Partners in San Francisco.

The banks don't want to turn away loans, but they're also not eager to pay for more customer funds or seek more expensive and often out-of-market wholesale deposits.