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A $9.07 a share, Beach Business Bank's comes at a 53% premium to the Manhattan Beach, Calif., seller's closing price.
August 31 -
With many competitors eschewing the interest-rate-sensitive housing market, First PacTrust took the opposite tack, agreeing to pay $17 million for Gateway Bancorp.
June 7
At first look, First PacTrust Bancorp's plans to buy a dominant mortgage lender and a leading commercial bank may seem like mixing oil and water.
Still, analysts said the company's Wednesday agreement to pay $37.4 million for Beach Business Bank in Manhattan Beach, Calif., combined with a deal in June to buy Gateway Bancorp, sweetened the company's outlook.
The commercial lending platform at Beach Business "is pretty important" for the company's growth, said Joe Gladue, an analyst at B. Riley & Co. "First PacTrust had been saying that they wanted to increase their business lending and diversify away from all the mortgage lending and this is a good time to do that,"
The $304 million-asset Beach Business is a leading commercial and small-business lender in Southern California, with a national doctors' loan division. First PacTrust wanted to specialize in commercial lending but its planned purchase of Gateway catapulted it more into single-family housing with 22 loan production offices in four western states.
In June, Gregory Mitchell, First PacTrust's president and chief executive, said the $882 million-asset company saw growth opportunities in mortgages due to attractive pricing and a regulatory environment that had pushed out competitors.
In an interview Wednesday, Mitchell said he feels even stronger about such opportunities since interest rates are expected to stay low for two years. Mixed with Beach Business' commercial lending enhances First PacTrust's ability to cross-sell and generate new revenue, he said.
"When we announced Gateway, we talked about it being a strategically important fit because it widened our fee income and could generate much higher levels of non-interest income," Mitchell said. In the case of Beach Business, it "gives us a very strong" platform for commercial and industrial lending and for making loans through the U.S. Small Business Administration.
At June 30, just 0.1% of Pacific Trust Bank's $674 million loan portfolio was C&I loans. In comparison. nearly 38% of Beach Business $249 million loan book is C&I. In terms of C&I and SBA lending, "we hadn't expected to really get out there until 2012 so this [deal] hits at just the right time," Mitchell said.
Mitchell said First PacTrust will operate Beach Business and Pacific Trust as separate units, but it will sell products between the two. Gateway's regional lending platform will expand to offer commercial products. Mitchell said the Gateway acquisition should close in the fourth quarter while Beach Business is set to close early next year. The deals will elevate First PacTrust to having more than $1 billion in assets.
Robert Franko, the president and CEO at Beach Business, will run that bank and will become First PacTrust's president.
Mitchell said Franko and his management team will play a key role in Pacific Trust's expansion into commercial and small-business lines. Mitchell, who has been aggressively courting other would-be sellers, said he hopes other hesitant bankers will take note of Beach Business' sale.
"It gives us a significant leg up," Mitchell said. Hesitant sellers "now see the people they viewed as some of the smartest and most successful community bankers make the decision to be leaders in the consolidation cycle. That will help us a lot and probably … be a game changer for other community banks."
