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Sale of Cuyamaca Bank Not a Complete Surprise

Sale of Cuyamaca Bank Not a Complete Surprise

Finance: Purchase By Local Institution Driven By Solid Growth Numbers

BY MIKE ALLEN

Two of the county’s oldest community banks joined forces last week when Community National Bancorp in Escondido signed a definitive agreement to acquire Santee-based Cuyamaca Bank.

“It’s a good fit for both organizations, and both sets of shareholders,” said Mike Perdue, Community Bancorp’s president and CEO, of the $27 million purchase. “We’re very excited about our prospects for East County. That area is showing the same type of growth that North County had a few years ago.”

Assuming Cuyamaca’s shareholders and regulators approve the deal, Community National would grow to about $615 million in assets and have nine offices stretching from Temecula south to El Cajon.

Community National Bancorp, founded in 1985 as Fallbrook National Bank, coveted Cuyamaca’s market, based on the 2.83 times the stock’s book value it paid for the assets, said several bankers.

“Cuyamaca got a really good price,” said Frank Mercardante, president of Southwest Community Bank, based in Encinitas. “Community got a fill-in, existing market player for a well run bank, and they can justify it.”

The agreement calls for each share of Cuyamaca to receive 1.0439 shares of Community National stock that traded on Nasdaq on June 30 at $23.70. At that price, the aggregate price for the Santee bank is $27.1 million. Cuyamaca shareholders have the choice of receiving either stock or cash, or a combination of both, but calls for 70 percent to be in stock.

Perdue said he was in talks with Cuyamaca officials for a few months before striking the deal. This is the first-ever acquisition for Community National, but not for Perdue, who was part of the management team at FP Bancorp, a former North County-based banking firm that has acquired other banks.

Double-Digit Growth

The choice of Cuyamaca wasn’t hard to figure. Founded in 1983, the small bank was once under a written regulatory order from the Federal Reserve in the early 1990s, and barely grew for most of the past decade. That changed after its board hired Bruce Ives as president and CEO in 1999. Since he took over, the bank has reported double-digit annual growth every year. By the end of March, it held $112.7 million in assets.

Some bankers said Cuyamaca’s board had been weighing offers from other banks before approving the deal with Community National, although Ives denied that.

“The bank was not actively pursuing a sale,” he said. “We felt the offer Community National was making was basically too good to refuse.”

Employees, Branches Safe

Because there is no overlap in the bank branches, Perdue said he would retain all four Cuyamaca offices and practically all its 60 employees. The bank has offices in Santee, La Mesa, El Cajon, and Encinitas. Ives, 39, will stay on board for an indefinite period to smooth the transition once the deal closes, likely sometime before the end of the third quarter.

Community National has been on growth spurt of its own in recent years, propelled mainly from a hefty increase in SBA lending. Two years ago it stood at about $400 million in assets, but as of the end of March, it held $502 million in assets, $422 million in loans, and $429 million in deposits.

The bank operates five offices in Escondido, Bonsall, Fallbrook, Temecula, and Vista, but it also has seven SBA lending offices in California, Arizona, Nevada and Oregon.

Cuyamaca’s sale didn’t surprise many local bankers, but the price did.

“That’s a wonderful price for a solid institution,” said Vince Siciliano, president of 1st Pacific Bank. In addition to Cuyamaca commanding a high book value, it also got an above-average price measured by the bank’s per-share earnings over the prior 12 months. That number was 32 — well above a price per earnings ratio for other recent sales in the 20s, Siciliano said.

“This is an incredibly complementary transaction for Community National,” he said. “They already have a strong growth strategy, but this gives them a platform to transfer their growth engine over a much bigger geographic area.”

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