Two deals were announced late Thursday for California banking companies - one in the San Francisco Bay Area and the other near Los Angeles.
The $1 billion-asset Heritage Commerce Corp. in San Jose said that it would buy the $249 million-asset Diablo Valley Bank in Danville for $70 million in cash and stock.
Farther south, the $6.1 billion-asset CVB Financial Corp. in Ontario said that it plans to buy the $238 million-asset First Coastal Bancshares in Manhattan Beach for $35 million in cash and stock.
Walter Kaczmarek, the president and chief executive officer of Heritage Commerce, said in a conference call Friday that buying Diablo Valley would expand his company's reach to the east side of the Bay Area, the region's fastest-growing market, because land is more affordable there.
"In virtually all categories we reviewed" through a demographic study, "the East Bay marketplace was rated extremely high as compared to the other counties in the Bay Area," Mr. Kaczmarek said. "Diablo Valley Bank has had exceptional balance-sheet growth and income growth since inception only three years ago. It clearly has become the leading independent bank in the Tri Valley area of the East Bay."
Heritage currently has two branches in the area, in Fremont and Danville; buying Diablo Valley would give it two more, in Danville and Pleasanton.
The deal is priced at 2.9 times Diablo Valley's tangible book, a good value for that hot market, according to Frederick Cannon, an analyst in San Francisco at KBW Inc.'s Keefe, Bruyette & Woods Inc.
"The pricing looks reasonable, and the deal makes sense from a strategical standpoint," Mr. Cannon said. "Also, Heritage has been sitting on a lot of capital, and this is a good investment of that capital."
Under the terms of the deal, Heritage would pay 1.73 million of Heritage stock and a total of $15 million in cash for all common shares of Diablo stock. Diablo shareholders could receive either Heritage stock, or $24.84 in cash for each share of Diablo stock.
The deal is expected to close in the second or third quarter and would be accretive to Heritage's earnings next year.
Both companies' stock prices dipped Friday; Diablo's shares fell 2%, and Heritage's fell 1.14%.
Though CVB currently has 22 branches in north and east Los Angeles County, its deal would fill a hole in the county's southern cities, since First Coastal has branches in El Segundo, Gardena, and Marina del Rey. CVB is based farther east in the Inland Empire region.
"The merger with First Coastal provides Citizens Business Bank the opportunity to expand our geographic presence into the South Bay and West Los Angeles areas," Christopher D. Myers, the president and CEO of CVB Financial, said in a press release Thursday. "It is also synergistic with our plans to open new commercial banking center locations in Torrance and Century City."
Mike McMahon, an analyst in the San Francisco office of Sandler O'Neill & Partners LP, said that the deal "expands CVB's footprint in a lucrative market, and they're paying a reasonable price for the company" - about 2.33 times First Coastal's tangible book value.
The price would be paid half in cash and half in stock. The deal is expected to close by early in the third quarter.
CVB's shares fell .48% Friday. First Coastal's stock, which is thinly traded, nearly doubled Friday, to $263 a share.
