Santa Barbara-based Bank to purchase Pacific Crest.

Pacific Capital Bancorp Inc. has reached an agreement to buy Pacific Crest Capital Inc., one of only a handful of remaining independent banks in the San Fernando Valley, for $135.8 million or $26 per diluted share in an all-cash transaction.

The deal is expected to close in the first quarter of 2004.

"They are a pretty full-service bank," said Gary Wehrle, president and CEO of Agoura Hills-based Pacific Crest Capital. "We're very limited service, so basically we'll be adding the types of things we do not now have."

Santa Barbara-based Pacific Capital, with $4.4 billion in assets, operates First National Bank of Central California, San Benito Bank, Santa Barbara Bank & Trust and South Valley National Bank. Its services include retail banking, commercial lending and wealth management services.

Pacific Crest, with assets of $592 million, operates three branches in Encino, Beverly Hills and San Diego and specializes in SBA and smaller commercial real estate loans.

With the merger, Pacific Crest will add many of the services Pacific Capital offers to its menu of products and extend its commercial lending reach throughout the 41-branch network that Pacific Capital operates.

"Where we've been a highly specialized, narrowly focused business bank, we'll have more of those consumer products," said Wehrle, who becomes executive vice president and a member of the board of the merged bank when the deal is completed.

Wealth management

In particular, the officials note that Pacific Crest's trading areas, in some of the wealthiest communities of Southern California, offer ideal demographics for Pacific Capital's wealth management services.

"We believe that our wealth management strategy can be particularly successful in those areas," said Tom Thomas, president and CEO of Pacific Capital.

At the same time, Pacific Crest has established itself as a preferred SBA lender in seven territories, including Arizona and Oregon as well as California, whereas Pacific Capital's lending activities are limited to the Central California market. That gives Pacific Capital a larger footprint to expand its SBA lending reach.

Although Pacific Crest will continue to specialize in small loans--its typical transaction is under $3 million--Pacific Capital's larger balance sheet will provide the wherewithal to add loans of $5 million to $7 million in size.

Like many of the independents that survived the banking industry's merger mania over the past decade. Pacific Crest has remained an attractive takeover target, and Wehrle has fielded feelers from other banks for some time.

The bank reported net income of $2.2 million or $0.42 per share in its most recent reporting period, compared to $0.33 per share last year and, perhaps more important, it boasts an exceptional lending record with no cumulative credit losses over the last five years and no defaults on its income property lending, some $750,000 to $1 billion in new loans, over the past 10 years.

"When another bank is looking at acquiring somebody, that's probably most important," Wehrle said. "Otherwise you're buying a pig in a poke. In the banking business you've got to wait 10 years to find out how it worked out."

The deal arose from a long time professional association between the two bank executives.

"Having known Gary for some time, and knowing the quality of the company and their success in SBA and income producing property markets, we thought these products and business lines would nicely complement our activities," said Thomas.

The right price

For his part, Wehrle said Pacific Crest decided to accept the offer because officials believed the cultures of the two institutions meshed well and, bottom line, the price was right.

"I've known Tom for five years," Wehrle said. "We have been on several California bankers committees together, and I have a very high regard for the culture they have. It was very unusual that a bank of that size would have a culture as similar to ours. Second, we thought the price was very fair for our shareholders."

Wehrle said large banks often do not place the same emphasis on employees and customer attention that Pacific Crest and Pacific Capital do.

"Tom Thomas is very similar to me in the way he deals with employees," Wehrle said. "In his company, he's on a first-name basis. I'm on a first name basis. There might be 50 banks that all might say the words, it's very unusual to have two that say the words and walk the talk."

The one thing the merger apparently will not offer is much in the way of cost savings.

"They are a lean organization that has done an excellent job of controlling expenses," Thomas said. "As such, we do not anticipate any near term cost savings."

Pacific Crest is expected to continue to operate autonomously through 2004, and the two companies will begin to integrate their operating systems in 2005, officials said.

Eventually, Thomas said, he anticipates a 15 percent cost savings from the merger, but the greatest impact will come from revenue growth, he added.

The transaction should add $0.10 per share to the bank's coffers in 2004 and between $0.13 and $0.14 per share in 2005, officials said.

Wehrle, who is 61, agreed to a three-year contract.

"I'll be 62 next year, so three years seemed about right," he said.

Pacific Crest's share price jumped on the news to the $25 range from $23.60 on the day before the agreement was announced.

Shares in Pacific Capital advanced to the $33 range, from $32.74 on the day before the transaction was announced.