A small deal in Los Angeles this week underscores how uncertainty breeds complexity in bank M&A.

Grandpoint Capital's deal for the five-branch National Bank of California and its parent has an unusually high number of moving parts for a tiny transaction, including a variable closing price and a two-year earn-out provision.

That means shareholders of National Bank of California would not know what they will be paid up front until closing, and they may also be due extra money in two years, depending on how their $340 million-asset company performs.

On top of that, Grandpoint intends by closing to repay the $11.1 million in preferred shares and unpaid dividends that National Bank of California owes the Troubled Asset Relief Program.

The multiple hoops Grandpoint is willing to jump through reflects the allure of California, as well as the bad turn the economy has taken this month on weak U.S. jobs growth and mounting fears about the European crisis.

National Bank of California is also a troubled bank; it lost money last year and is lightly traded over the counter at a steep discount to its equity. Deals for ailing banks are tough in good times and can be trickier in hard ones.

"The bank has gone through some challenging loans, and, obviously, the performance had suffered," says Henry Homsher, the president of National Bank of California. "Last year was difficult."

He estimates his bank's shareholders will receive a total of $3.4 million to $7.4 million in cash. The variable terms drove the deal, he says.

"It's always a question of how quickly you can turn a bank around," Homsher says. "This solves the problem for both sides."

Grandpoint, as a privately held bank, has more freedom than publicly traded rivals to negotiate complicated deals. Public shareholders tend to hate earn-out provisions because they obscure profit forecasts.

Grandpoint — a $1.5 billion-asset roll-up vehicle founded in 2010 — is eager to expand in and around its home market of Los Angeles. It agreed to buy the $244 million-asset California Community Bank in Escondido in January, and closed its purchase in January of the $355 million-asset Regents Bancshares in La Jolla.

The structure of its deal this week seeks to hedge both parties from fluctuations in the economy through the end of next year. The upside to such terms is they help make deals come together. The downside is that the final price will not be determined for years and complex deals are more prone to fall apart.

The agreement resembles a tiny deal in Virginia announced in July, just before the stock market plunged, that later fell apart. The planned sale of Alliance Bankshares (ABV) in Chantilly, Va., to Eagle Bancorp (EGBN) of Bethesda, Md., collapsed in November because of disputes over complicated price-adjustment clauses to be resolved at closing. Alliance signed a simpler agreement to sell itself to WashingtonFirst Bankshares of Reston, Va., last month.

This deal mimics Alliance's first transaction in that the final price is a moving target.

The money due to National Bank of California upon scheduled closing in the fourth quarter would depend on at least four factors, a press release announcing the deal late Monday says. They are: the value of its tangible common equity, its level of recoveries on charged-off loans, its transaction expenses and the size of the reserve to be set aside to cover its future loan losses.

Had the deal closed at May 31, the price paid would have been $1.45 per share, or about $3.4 million.

National Bank of California's shareholders have been promised extra money depending on how the seller performs over two years. They are to receive any unused loan-loss allowances, as well as payouts based on certain expense reductions and loan recoveries.

National Bank of California's final allowance is to be determined upon closing. Its allowance at May 31 was about $4 million.

D.A. Davidson advised National Bank of California in the deal; KBW's Keefe, Bruyette & Woods (KBW) advised Grandpoint.

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