A merger-of-equals deal involving two Northern California banks could be a precursor for a bigger beast.

Mid-Peninsula Bancorp, Palo Alto, and Cupertino National Bancorp agreed June 6 to form Greater Bay Bancorp, which would be the second-biggest holding company in the South Bay.

The proposed company, which would have $500 million in assets, would follow an acquisition path that would enable it to challenge Silicon Valley Bancorp as the leading bank to the business and venture-capital communities in the growing region.

"This gives us the opportunity and flexibility to make acquisitions," said Steven C. Smith, chief operating officer of Cupertino National. "There may be opportunities down the road when we want to do that."

David L. Kalkbrenner, chief executive, Mid-Peninsula Bancorp, said the area south of San Francisco Bay would figure into Greater Bay Bancorp's plans. The combined operations would be concentrated in Cupertino and Palo Alto on the southeast side of the bay.

"We think there's opportunity" on the east side of the bay, particularly south of Oakland, Mr. Kalkbrenner said. "It doesn't mean we're going to open an office over there right away, but it's a natural move for us to get into that side of the bay."

Mid-Peninsula, holding company for Mid-Peninsula Bank, and Cupertino, parent of Cupertino National Bank and Trust, each have about $250 million in assets. The deal would push the new entity firmly into second place in the South Bay, behind only Silicon Valley Bank, Santa Clara.

"This is a rare opportunity to create one of the largest locally based community bank franchises servicing the needs of the business and venture community in the greater Bay Area," Mr. Kalkbrenner said.

The deal would prove especially beneficial to Cupertino's venture lending program, which had been hurt in the past by the bank's size.

"Competing against Silicon Valley Bank and Imperial Bank was difficult because they'd tell potential customers that they would eventually outgrow Cupertino, so why not start with them instead," Mr. Smith said.

Mr. Kalkbrenner said his bank would also be able to take advantage of Cupertino National's trust division, instead of incurring costs involved with starting its own.

"We are the only banking company that will be covering the market from South San Francisco to South San Jose," Mr. Kalkbrenner said.

The South Bay, an area experiencing an economic and demographic boom, has seen its share of consolidation. This year U.S. Bancorp of Portland, Ore., acquired the holding company for Commercial Bank of Fremont and Bank of Milpitas. Last year University Bank and Trust Co., Palo Alto, was purchased by Comerica Inc., Detroit.

Other takeovers in the recent past include Comerica's acquisitions of Pacific Western Bank and Plaza Bank of Commerce, both in San Jose.

Mr. Kalkbrenner said that with less than a dozen independents based in the area south of San Francisco, there should be plenty of room for growth.

"It's remarkable when you look at the size of this market, there really is a shortage of banks, especially in the $500 million to $1 billion range," Mr. Kalkbrenner said.

"For the heavy concentration of business and personal wealth in the area, there really aren't that many banks," Mr. Smith added.

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