By Henry Dubroff Friday, October 25th, 2013

Aftershocks from the 2008 financial crisis are still reverberating across our region and its banking sector.

That’s one of the lessons behind the surprise announcement on Oct. 21 that Heritage Oaks and Mission Community, the two of the largest independent banks in San Luis Obispo County, plan to merge.

Both banks have survived the recession by taking in new capital that allowed them to absorb steep losses from commercial real estate and construction loans. And both were benefiting from new management with Simone Lagomarsino and Tom Dobyns running Heritage Oaks and Mission, respectively.

But financial crisis impacts, including a recovery, the Dodd-Frank banking overhaul and the entrance of aggressive new players have created new rules for the banking industry.

First, in a post-crisis, post-Dodd-Frank world, regulators have an extreme bias toward consolidation. Chats with bankers up and down the coast suggest the regulators are heavily scrutinizing new loan activity, which makes organic growth more difficult.

Thus, the merger of Heritage Oaks and Mission Community creates a $1.5 billion banking institution, in fact the largest locally-based bank in the region. Regulators will have one less bank to regulate and the combined bank will get benefits from economies of scale.

Second, the slow recovery means that loan growth is largely a market-share game. Some companies are finding ways to expand organically, particularly in agribusiness and manufacturing. But the region’s overall economy is not going gangbusters and it’s not likely that major city and county governments will reverse their traditional slow-growth policies. A few cities — Simi Valley, Oxnard and Santa Maria — have the capacity to grow more quickly. But in each of them, commercial demand is low and the housing recovery is still in its early stages.

Finally, two new West Coast banking players are making their impact felt. With approving nods from regulators, Los Angeles-based PacWest Bancorp and Portland, Ore.-based Umpqua Bank capitalized on the financial crisis with bold expansions. In the space of a few years, PacWest gobbled up Ventura-based Affinity Bank, Solvang-based Los Padres Bank and Westlake Village-based

First California Financial Group and went on to outbid Umpqua for American Perspective. Umpqua countered by opening a standalone branch in Templeton from which it may try to move down the coast.

Today, PacWest is undertaking a $2.3 billion merger with CapitalSource, and Umpqua in the early stages of completing a transformational merger with Sterling Bancorp of Washington State that will take its assets to $20 billion. Both may be too distracted by those deals to engage in a bidding war on the Central Coast, which gives the community lenders a rare chance to make a move.

By greenlighting the combination, major shareholders at Heritage Oaks and Mission Community have signaled they see more upside in staying independent and getting bigger.

What happens next is likely to be more consolidation. Which means that until PacWest, Umpqua or another large institution is ready to make a move, the handful of independent banks remaining in Santa Barbara and Ventura counties could suddenly find themselves in play.

An unlikely duo

She is a city girl from Brooklyn and a liberal, with a Ph.D. in economics from Berkeley and a steady government job.

He is a high school dropout, a small-town boy, a conservative Republican and a tough, risk-taking entrepreneur who lives in Los Angeles.

Those are just a few of the reasons why incoming Fed Chair Janet Yellen and Dole Food Co. CEO David Murdock make an unlikely couple.

But consider how Yellen, a key architect of  the Fed’s policy of keeping interest rates low, is helping one of the richest men in the region take his company private.

On Oct. 21, Murdock began peddling $275 million in junk bonds rated Caaa1 to finance his buyout of Dole, a global fruit and vegetable purveyor. Murdock will likely sell those bonds at an interest rate well below double digits, a historic low for risky ventures.

While millions of pensioners are getting some of the smallest Social Security hikes in history, and you’d be lucky to get 1 percent for a bank CD, Murdock is highly likely to get his deal done at a fraction of the cost of a “normal” interest rate environment. Bloomberg News quotes a blended rate for junk bonds at 6.5 percent.

What Murdock actually will pay is not clear but “yield starved investors are falling all over themselves to pile into anything,” Todd Lowenstein of HighMark Capital in Santa Barbara told me via email.

What the Fed wanted when it lowered rates via quantitative easing was more jobs and a growing economy. But finance, like politics, sometimes produces strange relationships.

Murdock and Yellen get my vote for the Business Times Man and Woman of the Year.

• Contact Editor Henry Dubroff at [email protected].