CBC Bancorp in Irvine, California, has agreed to pay approximately $121 million for Bay Community Bancorp in Oakland. The all-cash deal stitches together franchises at opposite ends of the Golden State, and promises to create a $3.5 billion institution with an ambitious growth target.
"Together we will build one of the best banking institutions in California with a focus on relationships, purpose, innovation and impact," Ash Patel, chairman, president and CEO of the $2.4 billion-asset CBC's bank subsidiary, Commercial Bank of California, said Monday in a press release. "We're officially on our purposeful journey to building a $5 billion bank."
Under the terms of the deal, announced late Monday, CBC will pay Bay Community investors $14 per share. After closing, expected to take place late in 2024 or early in 2025, Bay Community's subsidiary bank, Community Bank of the Bay, will retain its brand identity while operating as a division of Commercial Bank of California.
"Our goal is to maintain the legacies of both banks and increase our collective impact," Mukhtar Ali, the $975 million-asset Community Bank of the Bay's president and chief credit officer, said in the press release. "It's important to everyone that management remains local to each of the branches. This approach has served both banks' clients, team members and communities very well, and we do not want to disrupt that."
Ali and CEO William Keller are expected to lead a new local advisory board to advise the Community Bank of the Bay division and maintain its community engagement.
"Both of our banks are fully aligned regarding the important role that we can play to help our communities thrive," Keller said in the press release. "We're excited to collaborate with the CBC team and collectively make an ever bigger impact throughout California."
CBC's deal for Bay Community comes amid a recent uptick in bank merger-and-acquisition activity. Also on Monday, the $45 billion-asset SouthState Corp. in Winter Haven, Florida, said it would pay $2 billion in stock
Paul Schaus, founder and CEO of CCG Catalyst, a Phoenix-based financial services consulting and research advisory firm, said the industry is seeing a bump in M&A activity, including a notable increase in the number of all-stock deals. "I can't think of another time when there's been so many," Schaus said Tuesday in an interview.
Schaus cited liquidity concerns and tough market conditions as possible explanations. "By going together both sides may feel they can ride the wave until they get the market value they're targeting," Schaus said.
Like Schaus, Seaport Research Partners Senior Analyst Laurie Havener Hunsicker believes merger activity is ramping higher. Hunsicker added in a research note Monday that high interest rates "continue to weigh on merger math," in the form of relatively low premiums paid to sellers. "While we believe there is substantial pent-up demand for M&A, we do not expect to see a significant return of [higher premiums] until rates drop," Hunsicker wrote.
SouthState is paying a 10% premium for Independent, while 1st Capital agreed to sell at a slight discount to its market value. Last month, the $18.6 billion-asset Hope Bancorp in Los Angeles
CBC, by contrast, is paying an approximately 80% premium for Bay Community, likely a reflection of its strong financial results, Schaus said. Bay Community reported record earnings of $8.7 million in 2023, which equated to a pretax return on assets of 1.19%. Profits totaled $1.7 million in the first quarter. "These are both companies with good returns. They're very similar in nature," Schaus said of CBC and Bay Community.
Shareholders in the publicly traded Bay Community appeared to applaud the deal. Shares closed at $5.30, or 68%, Tuesday.
CBC reported earnings of $5.1 million for the quarter ending March 31 and $15.1 million for all of 2023.
"Once we combine our two reputable banking platforms, it will create a transformative business bank with expanded product offerings driven by the purpose to serve our communities across California," Patel said in the press release.
A CBC spokesperson did not respond to a request for comment.
