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Strategies & Market Trends : Speculating in Takeover Targets
ULBI 7.430+4.1%Feb 6 9:30 AM EST

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To: richardred who wrote (3794)9/28/2014 10:50:51 AM
From: richardred   of 7138
 
Bank of the Sierra eyes more acquisitions

Posted: Friday, September 26, 2014 9:23 am

By RICK ELKINS relkins@portervillerecorder.com


When the acquisition of Santa Clara Valley Bank concludes in December, Porterville-based Bank of the Sierra will not stop growing.

Bank CEO Jim Holly and bank COO Kevin McPhaill laid out the bank’s plans to seek more acquisitions and to nearly double in size over the next few years.





In short, the bank is in a growth mode.

“Our merger strategy is to look for opportunities and those that fit well, we’ll take advantage of those,” said Holly.

In July, Bank of the Sierra announced it was acquiring the small Santa Clara Valley Bank headquartered in Santa Paula. The three-branch bank has assets of just $130 million. Bank of the Sierra’s total assets are $1.56 billion and the two bank leaders said the goal is to take that to more than $2 billion.

To accomplish that, the bank will need to grow.

“We’ve always been content to grow by branches,” Holly explained of the past. Only twice has the bank acquired other banks, the last more than a decade ago. The new strategy is to take advantage of opportunities by purchasing smaller banks.

“We’re being opportunistic,” said McPhaill of a trend of smaller banks selling out.

Those opportunities, explained Holly, stem from the difficulty smaller banks are having keeping up with technology and regulatory burdens, as well as stock growth.

Holly said Bank of the Sierra has 12 people working just on new regulations, many enacted since the bank problems of the mid-2000s. Ten years ago, the bank only had two or three people working on keeping up with regulatory rules. Also, the bank they have acquired had a opening stock price of $10. Bank of the Sierra purchased that stock for $6 a share.

“Smaller banks are hugely problematic,” said Holly, pointing out there has been a wave of consolidation and most of the acquisitions have been made by banks similar in size to the Bank of the Sierra. He showed a chart where in 1990 there were 16,000 bank charters in the U.S. That has shrunk to 6,000 today and McPhaill said they expect to see that number fall to 4,000 over next five years. He also pointed out that since 2008, very few new banks have been chartered. Suncrest Bank in Visalia and Porterville is one of just a few new banks.

Holly said banks have two choices. “Get a lot bigger or sell.”

Acquisition outlined

In the strategic plan approved by the bank’s board of directors in January, growth by acquiring other banks was set as a goal, said McPhaill.

Holly, with more than 35 years in banking — 36 years as head of Bank of the Sierra — then began putting out feelers as to which banks might be willing to sell.

“We talked to a lot of people. That’s how it starts,” said McPhaill.

“I called them (Santa Clara) to see if they were interested,” Holly said of the Santa Paula bank. The first meeting was in March. “These guys were ready,” he added.

Once they found a willing seller, the local bank began its due diligence process, calling in auditors and surveying the market the bank they were acquiring serves.

Santa Clara Valley, which is east of Ventura along Highway 126, is similar to the San Joaquin Valley, especially Porterville. The city of Santa Paula calls itself the “Citrus Capital of the World.”

Holly said the bank to be bought also fit well into his bank’s business model.

Both Holly and McPhaill said the purchase has gone very smoothly and they expect the acquisition to be completed by Dec. 5.

By acquiring the new bank, the number of people employed by Bank of the Sierra should grow to more than 430. Holly said 30 employees are being retained with Santa Clara Valley Bank, and the purchase may require a few more people at the bank’s headquarters on Main Street in Porterville.

Future plans

The two bank leaders said while this purchase moves forward, they are already looking for more opportunities and mentioned several prospects along the Central Coast. McPhaill said the goal would be to reach a deal on another purchase early next year and complete that acquisition by the end of 2015.

McPhaill said the trend of midsized banks acquiring smaller banks began about a year ago.

Holly said the current acquisition should serve as a template for future acquisitions.

What the bank will look for is smaller banks in good locations with a potential for growth.

About the Banks

Porterville-headquartered Sierra Bancorp is the holding company of Bank of the Sierra. It was founded in 1978 by a group of local investors and has been one of the most successful independent banks on the West Coast.

Santa Clara Valley Bank began 15 years ago and serves the communities of Ventura, Oxnard and Santa Clarita with branches in Santa Paula, Fillmore and Valencia.

Sierra reported it had acquired the southern California bank for $15.3 million, which consists of $12.3 million in common shares and $3 million in cash to preferred shareholders. Included in the $12.3 million consideration, the local bank will pay $700,000 to cash out existing in-the-money warrants.

recorderonline.com

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