A newly announced deal to buy privately held EurekaBank would make Bay View Capital Corp. the largest independent in the San Francisco Bay area.
San Mateo-based Bay View said late Thursday that it would pay $300 million in stock and cash for EurekaBank, a $2.2 billion-asset thrift based in Foster City. EurekaBank is owned by America First Financial Fund, an Omaha-based limited partnership.
Bay View said the deal, which would boost its assets to $5 billion, is expected to close by Jan. 1. Regulatory and shareholder approvals are needed.
Long just a small, underperforming thrift, Bay View has been diversifying in the past two years into commercial and consumer finance. But officials say they want to retain the banking focus.
"Strategically this makes a great deal of sense,' said Edward H. Sondker, president and chief executive officer.
The acquisition would boost Bay View's retail presence in the nation's 14th-largest metropolitan area. With just over 3% of deposits in the 10- county San Francisco Bay area, the thrift would rank seventh out of 125 institutions, though still far behind major banks and thrifts.
EurekaBank would provide a solid base of cheap deposits instead of costly Federal Home Loan Bank borrowings to fund Bay View's expansion in lending.
In a related move, officials said Bay View was shifting to retaining its auto loans and collecting interest on them, instead of securitizing them and collecting fees. That will cut this year's net income by about $2.9 million, the company said, but will boost revenue in the years after.
"We are getting into asset generating," Mr. Sondker said. "But as we rapidly start growing in those areas, we need cheap funds- and this is the way to do it."
News of the deal brought praise of Bay View, already a favorite of investors and Wall Street.
"Strategically, the deal's fantastic," said Caren E. Mayer, vice president of Montgomery Securities in San Francisco. "It gives Bay View a deposit stronghold in the San Francisco area."
"Bay View will create a large enough and attractive enough deposit franchise that it should be able to fund its origination needs for the foreseeable future," said Thomas F. Theurkauf, thrift analyst at Keefe, Bruyette & Woods in New York.
Bay View stock closed at $50.25 on Friday, down 88 cents.
Under the deal, Bay View would pay $210 million in stock and $90 million in cash for EurekaBank. Eurekabank would be merged into Bay View Bank, which has 27 branches. Seven of EurekaBank's 36 branches in the Bay Area would be closed.
America First Financial is to be phased out of existence. The limited partnership was formed in 1987 to acquire EurekaBank, which was then failing, from the now defunct Federal Savings and Loan Insurance Corp.