Durham’s Square 1 Bank to be acquired

Square 1 Bank, which went public a year ago, is being sold to a much larger California-based bank for stock valued at $849 million.

Square 1 will operate as a division of Pacific West Bank and will retain its name, according to the announcement made by the two banks Monday.

Based in Durham, Square 1 provides loans and other banking services to venture capital firms and the businesses they invest in nationwide. It has a low profile locally but has 13 offices across the country and $3.1 billion in assets.

Under the terms of the deal, which is technically a merger, Square 1 shareholders will receive 0.5997 shares of stock in Pacific West’s corporate parent, PacWest, for each share they own.

Based on Friday’s closing price for PacWest shares, that would amount to $27.49 per share for Square 1 shareholders. Shares of Square 1 Financial, the bank’s corporate parent, closed Friday at $27.68.

“The transaction is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes and Square 1 stockholders are not expected to recognize gain or loss” based on the stock they will receive, according to the banks.

Investors weren’t enamored with the deal. Square 1 shares fell 6 percent on Monday, closing at $26.00. PacWest shares closed at $44.99, down 85 cents.

Prior to Monday’s decline, Square 1 shares had risen 54 percent since the company went public 12 months ago. The bank was founded in 2005.

PacWest has 80 branches, mostly in southern and central California, and $16.2 billion in assets. It’s a more traditional bank than Square 1, catering to small and mid-sized businesses.

Officials of both banks didn’t respond to requests for comment and additional details on Monday.

“Square 1 offers PacWest a complementary line of businesses and significant core deposit growth,” Square 1 CEO Doug Bowers said in a statement. “As part of PacWest, we will maintain our steadfast commitment to the entrepreneurial and venture communities, will be able to offer clients a wider array of products and will be well-positioned to continue to serve them through all stages of their growth.”

For all of 2014, Square 1’s average loan balance rose nearly 29 percent. Net income last year rose 54 percent to $34.1 million.

The banks didn’t address whether Bowers will remain in charge of the Square 1 operations; rather, their announcement stated that “senior executives” from each of the banks will have “key positions” in the combined bank. Merging the banks is expected to generate cost savings amounting to 20 percent of Square 1’s operating expenses, or $13.9 million pre-tax, next year.

It’s unclear how cost-cutting efforts would impact Square 1’s employees. The bank had 245 workers as of June 30.

The merged banks will be headquartered in Los Angeles and a Square 1 director will be appointed to PacWest’s board.

The combined bank will be the sixth-largest publicly traded bank headquartered in California. The deal is expected to be completed in the fourth quarter.

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