Peninsula Bank Plans to Acquire Citizens Western : Takeover: The agreement would make slow-moving but successful Peninsula one of the county’s five largest locally based banks.

Peninsula Bank of San Diego, one of the state’s best-performing independent banks, has agreed to acquire San Diego-based Citizens Western Bank in a deal that would make Peninsula one of San Diego County’s five largest locally based banks, the banks said Monday.

The deal would be valued at about $2.3 million at Citizens Western’s current book value, Peninsula President John G. Rebelo Jr. said Monday. Citizens Western shareholders will receive cash based on the book value of their stock if the deal is completed.

Based on today’s book value, the transaction would be worth $3.75 per share to Citizens Western investors.

Bank officials said it could take as long as six months to complete the deal, which would raise Peninsula’s total assets to $240 million. The letter of intent announced Monday is subject to a definitive agreement being signed. The deal also requires the approval of regulators and shareholders of both banks.

Peninsula, with branches in Point Loma, Ocean Beach, Loma Portal and Morena, has about $210 million in assets and $195 million in deposits. Citizens Western, with branches in Pacific Beach and La Jolla, has about $30 million in assets and $25 million in deposits.

“The deal is a good fit for us,” Rebelo said. “We’ve been looking at Pacific Beach for about five years.” Peninsula has had “casual discussion” with Citizens Western in recent years, but only recently began serious negotiations, Rebelo said.

Peninsula has never before acquired branches from other institutions. It was founded in 1975 and has expanded slowly from its base in Point Loma. Last year Peninsula received regulatory approval to open a branch in Pacific Beach but did not utilize that approval.

“Peninsula is a steady, plodding, grunting institution that makes money,” said Gerry Findley, editor of Brea-based Findley Reports, a banking industry publication. “They practice the art of successful banking. . . . They stick to their core business, and they just grind it out.”

The acquisition makes sense for Peninsula because it is less expensive than establishing a new branch office, Findley said. For 16 years, Peninsula has received a “premiere” rating from Findley, who tracks the state’s best-performing independent banks. Peninsula Bank reported $2 million in net income for the year ended Dec. 30.

Citizens Western, which broke even in 1990, has operated for several months under a “cease-and-desist” order issued by the Federal Deposit Insurance Corp., which insures bank deposits. The order essentially did not restrict the bank from making loans, but directed it to achieve profits in line with its peer group, said Kenneth R. Kurtz, vice chairman of Citizens Western.

The order “primarily had to do with the fact that our earnings are erratic,” said Kurtz, who added that the bank’s capital and loan quality were not a problem in the eyes of regulators. The bank reported a $297,000 net profit in 1989 but lost $162,000 in 1988. The bank lost about $33,000 during the first quarter of 1990.

However, Kurtz maintained that the cease-and-desist order did not force Citizens Western to seek a buyer. Kurtz instead tied the deal to the fact that “there’s no market for our stock, and there’s been a desire for several years to give our shareholders the opportunity for some liquidity.”

Kurtz said Citizens Western has been holding talks with other institutions for several years.