Troubled Santa Lucia Bank makes buyout deal

June 27, 2011

By LISA RIZZO

San Luis Obispo headquartered Mission Community Bancorp announced today that it plans to acquire Santa Lucia Bank, a deal that if approved soon could likely save the struggling Atascadero based bank from further regulatory action.

Backed by a private equity firm, the Carpenter Fund Manager, Mission says it expects to finalize the transaction through a merger agreement that they hope will close in the fourth quarter of 2011.

But before the transaction can go through, Mission must raise additional capital to buy back Troubled Asset Relief Program (TARP) shares from the U.S. Treasury. The deal is also subject to the approval of shareholders and state and federal regulators.

The clock is ticking for Santa Lucia Bank, which is facing a state regulatory deadline that requires the ailing financial institution to increase its shareholder equity by $12 million.

A May 3 consent order issued by its regulator, the California Department of Financial Institutions, gave Santa Lucia 90 days to increase equity or find a strategic partner to correct its under-capitalization condition and address problems with lending, management, and operations.

Through the proposed merger, Santa Lucia Bancorp investors would receive 35 cents per share compared to the more than eight dollars a share it was selling at just over a year ago and a closing price of 51 cents a share on June 24.

As of March 31, Mission had total assets of $217.6 million and total deposits of $174.7, while Santa Lucia Bancorp had assets of $246.3 million and total deposits of $230.7 million. If the deal goes through, Mission anticipates it will have more than $460 million in assets and $400 million in deposits.

“The strategic opportunities presented in this transaction are very attractive for our shareholders, as we believe the merged company will better serve the communities in which they operate,” said Jim Lokey, chairman of the board and chief executive officer of Mission in a statement.

Even so, in the first quarter of 2011, Santa Lucia Bank reported it had $25.9 million in non-performing loans, referring to loans in which borrowers were behind on their payments by at least 90 days.

A commonly used measure of a bank’s credit woes, the Texas Ratio, identifies Santa Lucia Bank as at risk of failure.

The ratio is determined by dividing the value of the lenders non-performing assets by its capital and loan loss reserves. The Texas Ratio developer, Gerald Cassidy, used the measure to successfully predict many bank failings early in the 1980 and 1990 recessions. He noted banks tended to fail if the ratio reached 100 percent.

In the last quarter of 2010, Santa Lucia Bank’s Texas ratio was 108 percent. During the same time Mission Community Bancorp had a Texas ratio of 0 percent.

Santa Lucia Bank, which operates four branches in San Luis Obispo and Santa Barbara counties, reported a 2010 net loss of $14.8 million. Through the acquisition, Mission would receive and hold certain non-performing assets of Santa Lucia Bank.

“I deeply believe that the strong and well-capitalized combination of Mission Community Bank and Santa Lucia Bank will have a positive impact on the local economies we serve and assist in their economic turnaround,” Lokey said. “We intend to accomplish this by providing a complete suite of financial services to the entrepreneurs who run small and mid-sized businesses in our communities, and who share our vision to build, expand and create new jobs.”

John Hansen, president and chief executive officer of Santa Lucia Bancorp, says he welcomes the partnership.