Dive Brief:

• Southern California Bancorp and California BanCorp plan to merge in an all-stock transaction valued at roughly $233.6 million, the banks announced Tuesday.
• The transaction is expected to close in the third quarter of 2024.
• Southern California Bancorp’s Chairman and CEO David Rainer will serve as executive chairman of the combined company. California BanCorp CEO Steven Shelton, meanwhile, will serve as chief executive of the combined company and the combined bank.

Dive Insight:

Billed as a “merger of equals,” the deal will create a $4.6 billion-asset company with a presence in some of California’s strongest areas for mid-market business banking.

“The expanded scale and capabilities we will have as a result of this merger will enhance our ability to continue adding attractive full banking relationships with commercial clients that provide operating deposit accounts and high quality lending opportunities, as well as enabling us to move up market and work with larger businesses,” Steven Shelton, CEO of California BanCorp, said in a press release Tuesday. 

At deal completion, Southern California Bancorp shareholders will own approximately 57% of the outstanding shares of the combined company, and California BanCorp shareholders will own about 43%.

The resulting company’s board will consist of six directors from Southern California Bancorp, including Rainer, and six from California BanCorp, including Shelton. A lead independent director will be appointed after deal closing.

California BanCorp Chairman Stephen Cortese said the company, over the past several years, has invested in talent and technology that strengthened the franchise and led to growth in its client base, increased efficiencies and improved profitability. 

“This merger will accelerate the growth of our franchise and further improve our ability to create long-term value for shareholders,” Cortese said in Tuesday’s release. 

The companies will evaluate rebranding with new names and logos at the close of the transaction, they said. Corporate headquarters will be in San Diego.

“Our two companies share the same vision and values with a customer-centric focus on providing outstanding service to mid-market businesses. We believe this combination, resulting in increased size and scale, will drive improved profitability and increase shareholder value,” Rainer said.

Neither bank is new to M&A. The $2.3 billion-asset Southern California Bancorp bought Rancho Santa Margarita, California-based CalWest Bancorp in 2020. Walnut Creek, California-based California BanCorp bought Fremont, California-based Pan Pacific Bank in 2015.

The new company’s footprint will include the California Bank of Commerce branch in Contra Costa County and its four loan production offices serving Alameda, Contra Costa, Sacramento and Santa Clara counties.

In Southern California, the company’s footprint will include Bank of Southern California’s 13 branches that serve Los Angeles, Orange, San Diego and Ventura counties and the Inland Empire.

California-based banks were targeted in only three deals in 2023, according to S&P Global Market Intelligence data. But one of those — Banc of California's merger with PacWest Bancorp — was the only 2023 bank deal with more than $1 billion in announced deal value.

Jacob Thompson, managing director at Samco Capital Markets, said a “merger of equals” like this is representative of what he expects see throughout 2024 — similar-size organizations bulking up for scale and efficiencies.

“While the deal value for an MOE might not be glamorous, you can make the argument that the combined entity will present a more valuable target to a future acquirer,” Thompson said. “I still think that unrealized losses in the industry’s bond portfolio and the corresponding erosion of tangible capital make traditional dealmaking a challenge because of the transaction math and mark-to-market.”

He added the performance of bank stocks last year was “pretty rough.”

“I know the market is hopeful for rate cuts based on [Federal Reserve] remarks, but I don’t see those happening until later this year,” he said.