Another small L.A. lender, tired of fighting an uphill battle against new regulations, decided it was time to hitch its wagon to a bigger horse.
Covina savings and loan Simplicity Bancorp Inc. announced last week that it has entered into an agreement to be purchased by Seattle thrift HomeStreet Inc. in an all-stock deal that would boost HomeStreet’s assets to $4.1 billion.
Dustin Luton, Simplicity’s chief executive, said he decided to seek an acquirer mainly because new regulatory requirements have made it prohibitively expensive to run a smaller bank.
On the other side, Mark Mason, HomeStreet’s chief executive, saw Simplicity’s strong balance sheet as a way to add needed capital to his company without diluting shareholders. He also said the size of the combined company makes the regulatory burden easier to handle – spreading costs out over a bigger business – and will make more products and services available to Simplicity’s existing customers.
“Scale isn’t just nice to have, it’s critical today,” Mason said. “We see what Dustin and his team have struggled with in complying with all of the additional requirements of being a bank today. The opportunities they have not been able to take, and the new lines of business they sorely need, would require substantial investment and time, and this transaction accelerates all of that.”
This is just the latest in a string of recent bank mergers in the L.A. area. Since Jan. 1, 2013, there have been six local banks acquired, with several more deals announced.
Most recently, prior to the Simplicity deal, CU Bancorp in Encino announced plans in July to buy downtown L.A.’s 1st Enterprise Bank in an all-stock deal that would boost CU Bancorp’s assets to about $2.2 billion.
One key motivator behind the recent merger activity has been new regulations that have made it harder and more expensive for smaller banks to be profitable. Big banks have the resources to hire an army of compliance attorneys and other specialists, but a community savings and loan, with a few hundred million in assets, does not.
Luton said Simplicity, with about $880 million in assets, has the same regulatory requirements as HomeStreet, which has $3.2 billion in assets. That’s why he sought a larger partner, and why he expects other banks around Simplicity’s size to continue to struggle if they go it alone.
“There’s honestly more work the smaller you are because you’ve got the same requirements as the bigger guys,” Luton said. “It’s going to make it very difficult for smaller organizations to be profitable and provide the services that customers just take for granted.”
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