Cathay Bank, the oldest Chinese-focused lender in Los Angeles, said Friday that it plans to acquire a smaller local rival, Far East National Bank, continuing a recent trend toward consolidation.
Cathay General Corp., the bank's parent, will pay about $340 million in cash and stock to acquire Far East National, which has $1.3 billion in assets and nine branches, most of them in Southern California. Cathay has assets of more than $13 billion and 50 branches across nine states, including New York.
Cathay has bought a handful of other banks over the years, usually to push into new territory. Since 2006, it's acquired two banks in New York, one in New Jersey and one in Chicago, gradually expanding beyond California into other regions with large Chinese immigrant populations.
The Far East National deal, though, looks to be more about shoring up Cathay's balance sheet and boosting profits than about expansion.
Headquartered just blocks apart in L.A.'s Chinatown, both Cathay and Far East cater to customers who emigrated from or have business ties to China. Far East has just nine branches, many of them a stone's throw away from Cathay branches.
After the acquisition closes, Cathay will pick up Far East's loans and deposits while closing several branches and combining executive and management operations, providing cost savings to Cathay.
Heng Chen, Cathy's chief financial officer, said the bank has been on the lookout for potential acquisitions but that there have been relatively few willing sellers – at least at the prices Cathay was willing to pay. In Far East National, Cathay found a bank with a similar customer base and with a corporate parent willing to sell for an attractive price.
Cathay General is its own publicly traded institution, while Far East National has been owned since 1997 by Taiwan's Bank SinoPac.
Bank deals are typically judged by the ratio of purchase price to book value, which is a bank's loan portfolio and other assets minus its deposits and other liabilities. Cathay in this case is paying about 1.3 times book value – a lower multiple than some recent deals – with some tax savings that could drive the figure lower, Chen said.
Alton Wang, Far East's president, did not return calls for comment, but Chen said he believed that SinoPac might have wanted to sell so it could focus on its operations in Asia.
Aaron Deer, an analyst at investment bank Sandler O'Neill and Partners, said that Cathay is getting a good price and that even if the deal looks more financial than strategic, Cathay could pick up additional business. Without a U.S. banking operation, SinoPac might steer some of its clients with U.S. banking needs to Cathay, he said.
The deal, which must be approved by regulators, is expected to close in the first half of next year.
The acquisition marks a continuation of what's so far been a slow consolidation within L.A.'s Asian banking scene. Los Angeles County is home to about two dozen Chinese- and Korean-American banks, many of them relatively small.
While several Korean banks have merged over the past few years – a blockbuster combination of Koreatown's BBCN and Wilshire banks is set to close in the coming months – Chinese banks have been less active.
The last deal of consequence was the acquisition last November of Alhambra's TomatoBank, a tiny bank with less than $500 million in assets, by fellow Chinese lender Royal Business Bank, headquartered in downtown L.A.
Chen said there are relatively few willing sellers, with some banks holding out for higher buyout offers than others are willing to pay and others with owners who simply have little interest in selling.
"Many of the smaller ones are closely held by the bank directors, and they feel there's some benefit to being a bank director and being in the lending business," he said.
Cathay General shares closed at $28.70 on the Nasdaq on Friday, up nearly 5% on the day.
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