Westamerica Bancorp. and Vallicorp Holdings Inc., two of California's most prominent community banking companies, announced a merger agreement Tuesday.

Westamerica said it will pay $304 million in stock, 2.1 times Vallicorp's book value, in hopes of creating a community and small-business banking powerhouse with 115 branches in Northern California and the Central Valley.

At $3.9 billion of assets - second only to City National Corp. of Beverly Hills among California independents - and with the eighth-largest share of deposits in the state, Westamerica could emerge as an attractive target for an out-of-state acquirer.

That hypothetical acquisition could give investors in $1.3 billion-asset Vallicorp, parent of Valliwide Bank, the benefit of a "double dip." The Fresno-based company's stock price rose Tuesday by $1.25 to an all-time high of $19.50.

But analysts said a double dip is not likely soon. The $2.5 billion- asset Westamerica will be focused on the anticipated merger completion in the second quarter of next year.

"Vallicorp is a logical merger partner due to its strong business banking position in this large and growing part of our state," said David L. Payne, chairman and chief executive officer of Westamerica, based in the northern San Francisco suburb of San Rafael.

"Westamerica has sought a larger presence in the Central Valley for a number of years and this does it," said Michael Abrahams, bank analyst at Sutro & Co. in San Francisco.

Westamerica has made six acquisitions in three years, gaining national attention in 1993 with the $60 million purchase of Napa Valley Bancorp after a stormy, initially unwelcome courtship.

Two of the few midsize California banks to come through the last recession relatively unscathed, Westamerica and Vallicorp were in a community bank consortium that tried unsuccessfully to buy branches divested after Wells Fargo & Co.'s merger this year with First Interstate Bancorp.

In the wake of a failed bid last year to acquire California Bankshares, Westamerica made "a very smart deal" for Vallicorp, Mr. Abrahams said.

The combined company would rank fifth among California banks in small- business loans not related to real estate, at $412 million.

Westamerica would essentially be doubling its 57-office Northern California network and increasing its $2.1 billion of deposits by more than 50%. Vallicorp has some branches in the Sacramento area but otherwise reaches south through the agricultural belt to Bakersfield.

Vallicorp "is a desirable franchise (that) complements our growth strategy," said E. Joseph Bowler, senior vice president and treasurer of Westamerica. "We have a lot going for ourselves individually, but with this combination, we're even stronger."

The move caps months of speculation about the future of Vallicorp. It disclosed in September that it was in talks with an unspecified suitor. Many analysts then believed it was Portland, Ore.-based U.S. Bancorp, but it now appears it was Westamerica.

Vallicorp called off the talks a month later, but most observers still expected the company to sell.

"Vallicorp had the best franchise in the Central Valley," said Campbell Chaney, an analyst at Sandler O'Neill in San Francisco. "If U.S. Bancorp is not kicking themselves, they should be."

Vallicorp chairman and CEO J. Mike McGowan cited "the current environment of rapid change and consolidation" and said Westamerica presented "an unparalleled opportunity to join a premier California community bank."

Westamerica is to pay $21 in stock for each Vallicorp share, subject to adjustment if the buyer's share price is over $53.81 or below $48.69 at closing.

Westamerica closed Tuesday at $52. The merger is subject to shareholder and regulatory approvals.

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