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SoCal banks fetch higher valuations as deals grow scarce

Bank deal valuations are climbing in Southern California, with Los Angeles becoming one of the highest-priced places in the country to buy a bank.

From July 1, 2017, through Feb. 12, 2018, four banks based in Southern California have announced sales, selling for a median of almost 2x tangible common equity. Three of the four were based in the Los Angeles-Long Beach-Anaheim, Calif., metropolitan statistical area.

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Bank deals announced in the Los Angeles MSA rank as the second highest in the country by median deal value to tangible common equity. Only the Tampa-St. Petersburg-Clearwater, Fla. MSA ranks higher.

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Recently, a pair of banks in the region decided to combine, as Bank of Southern California NA agreed to buy Americas United Bank for $44.1 million.

Before that, the latest deal announced in Southern California was Pacific Premier Bancorp Inc.'s $641.2 million agreement to purchase Los Angeles-based Grandpoint Capital Inc., a bank that was started in the financial crisis to take advantage of low purchase prices for struggling banks. S&P Global Market Intelligence valued the price for Grandpoint Capital at 212.2% of tangible common equity.

Pacific Premier, based in Irvine, Calif., entered the Los Angles MSA with the purchase of Plaza Bancorp in November 2017. Its CFO, Ronald Nicolas Jr., called the region "the land of 10,000 small businesses" in an interview with S&P Global Market Intelligence.

Deals in Southern California have become less frequent in recent years, but bankers are finding other ways to enter the market. The area is seeing relatively high bank startup activity. Of the six de novo banks established in the U.S. since the beginning of 2017, half were based in SoCal counties.

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As for remaining potential targets, there are 28 banks based in Southern California above $1 billion in assets that are not already in an announced deal. Three of the four largest are Asian-American-focused banks: East West Bancorp Inc., Cathay General Bancorp, and Hope Bancorp Inc. The second-largest bank is PacWest Bancorp, which has acquired three banks, including two based in Los Angeles, in the last five years.

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