Growing Monarch Acquiring SC Bancorp
Under heavy pressure from major shareholders, the parent company of Southern California Bank said Monday it has agreed to be acquired by Monarch Bancorp in a stock swap valued at nearly $107 million.
SC Bancorp in Anaheim said it would join the fast-growing Laguna Niguel multi-bank holding operation to create the first Orange County-based commercial banking concern with more than $1 billion in loans and other assets.
Monarch, which owns Monarch Bank in Laguna Niguel and Western Bank in Los Angeles, also is purchasing National Bank of Southern California in Newport Beach. It expects to close that deal within two months.
Once the SC Bancorp purchase is completed late this year, pending shareholder and regulatory approvals, the holding company would control $1.4 billion in assets.
Financed by well-heeled out-of-state investors, Monarch Bancorp wants to control a regional group of community banks that would hold a total of about $3 billion in assets.
“Community banking is our niche,” said Arnold Hahn, Monarch’s chief financial officer. “In working with customers, the characteristics of each individual bank are important to maintain.”
Layoffs are likely, primarily in back-office operations and data processing, he said, but the company hopes to keep them to a minimum. Few were laid off in previous acquisitions, he said, because hiring was frozen while a number of employees left for other jobs.
“We’re excited about the merger,” said Larry Hartwig, Southern California Bank’s president. “It’s going to change the landscape in Orange County. It should be a boon to community bank customers.”
With Southern California Bank’s 14 branches in southeastern Los Angeles County and central and northern Orange County, the combination would give Monarch 26 branches systemwide from Western’s five branches in Encino and western Los Angeles to Monarch’s two branches in south Orange County.
The sale of SC Bancorp was inevitable after major shareholders, led by Basswood Partners L.P. in Paramus, N.J., began criticizing the bank’s slow recovery and calling for its sale.
Though SC Bancorp had record earnings of $4.5 million last year, Basswood principal Matthew Lindenbaum asserted that the bank was taking too long to turn itself around from earlier losses and bad loan problems.
Clearing up loan problems and getting regulators off the bank’s back was good, he said previously. “But survival is no longer the benchmark for performance. The bank has just not demonstrated any ability or capacity to perform up to the standards of other banks its size,” he said.
Even so, Hartwig said, SC Bancorp fetched a price that amounts to more than twice its book value, the value of its holdings on its balance sheet. The price, as a percentage of book value, is among the highest in recent deals for Orange County banks.
Lindenbaum and other shareholders aligned with Basswood, such as mutual fund giant Franklin Resources Inc. in San Mateo, couldn’t be reached for comment. But Basswood and Franklin are on both sides in this deal. Basswood owns 9.7% of SC Bancorp and an unspecified amount of Monarch, while Franklin holds 5.4% of SC and 9.9% of Monarch.
Under the terms of the deal, each SC Bancorp shareholder will receive new Monarch Bancorp shares based upon a purchase price of $14.25 per share of SC Bancorp common stock. The complicated formula will mean that SC shareholders will wind up with 32% to 37% of the holding company.
Hartwig and three other SC directors will join Monarch’s board, which will have 13 members.
“Basswood certainly caused us to evaluate shareholder interest and the whole idea of doing what’s best for shareholders,” said David McCoy, SC Bancorp’s chief operating officer. “We hired financial advisors and had lots of conversations with potential buyers. We got what we think is a very good deal for our shareholders.”
