Add Coast Bancorp to Greater Bay Bancorp's fast-growing roster of Northern California community banks.
Palo Alto, Calif.-based Greater Bay announced a deal late Tuesday to buy $350 million-asset Coast Bancorp of Santa Cruz for $125 million of stock. The pooling-of-interests deal is the fourth - and most expensive - announced by $2.6 billion-asset Greater Bay this year and continues its aggressive push to expand before regulators close the window on pooling acquisitions. Under terms of the deal, Greater Bay would pay 4.1 times Coast's book value and 19.4 times its forward earnings. On average, Greater Bay has been paying sellers roughly 3.35 times their book value.
The deal is the first in which Greater Bay has crossed the Santa Cruz Mountains, which separate California's coastline from Silicon Valley, to make an acquisition.
Coast, parent of Coast Commercial Bank, operates five branches in and around Santa Cruz. Founded in 1982, it is one of the region's leading small-business lenders, ranking among the top eight SBA lenders in California in fiscal year 1999 and among the top 50 in the United States.
Greater Bay's president and chief executive officer David L. Kalkbrenner said his company was attracted to Coast by its solid reputation, dominant position around Santa Cruz, and strong management.
"Coast Bancorp is among the top-rated California banks for safety, strength, and performance," said Mr. Kalkbrenner. "It is a quality institution that has demonstrated success year after year."
Investors were less enthusiastic, however. Greater Bay's stock was trading down 5%, at $38.1875 a share, on heavy volume late Wednesday.
Still, analysts said Greater Bay is paying a fair price, asserting that it could squeeze out 15% to 20% of cost savings by consolidating Coast's back-office operations. They also pointed out that Coast is a strong performer: Through Sept. 30 it had a return on assets of 2.2% and return on equity of 22.5%. These numbers should only improve, they said, with a higher legal lending limit and a wider selection of products.
"Coast is a great little company," said David Winton, an analyst at Keefe, Bruyette & Woods Inc. in New York. "Its fundamentals are at least as good as Greater Bay's."
So far this year, Greater Bay has made four deals worth a combined $246 million of stock. Once all the deals have closed, Greater Bay will have added more than $800 million of assets and 13 branches.
More acquisitions could be in the pipeline. Sources said Greater Bay is still on the prowl and that it would like to wrap up at least three more deals before the expected elimination of pooling-of-interests accounting in January 2001.
Coast shareholders would get 0.675 share of Greater Bay stock for each share they own, if Greater Bay's average closing stock price is between $32.84 and $38.16. The deal is expected to close early in the second quarter.
Under Greater Bay's "super community" banking structure, Coast will operate as a subsidiary of Greater Bay and retain its name, board of directors, and senior management team.