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California bank M&A surges to life with 4 deals announced in March

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California bank M&A surges to life with 4 deals announced in March

After two slow years in the Golden State, bank M&A roared to life last month with four deal announcements. By comparison, only three deals were announced in 2020 and five in all of 2019.

Most recently, on March 22, Santa Ana-based Banc of California Inc., announced that it would acquire Costa Mesa-based Pacific Mercantile Bancorp for $247.9 million. Once completed, Banc of California NA, already California's 2nd-largest community bank, will have more than $9 billion in assets.

On March 9, San Francisco-based digital lender Social Finance Inc. made a surprise announcement that it would acquire Sacramento-based Golden Pacific Bancorp Inc. for $22.3 million, after it had previously filed to open a de novo bank. If the deal goes through, SoFi would fund its future loan offerings using customer deposits instead of the higher-cost funds available to nonbank lenders.

Last month's two other deals: Reno, Nevada-based Plumas Bancorp's acquisition of Yuba City, Calif.-based Feather River Bancorp Inc. and an investor group's acquisition of Chico, Calif.-based Northern California National Bank were worth $22.1 million and $47.4 million, respectively, at deal announcement.

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California's community banks did well in the final quarter of 2020, besting the national median in five of the six metrics examined. The state's median Tier 1 leverage ratio was 10.10% in the fourth quarter, only 1 basis point shy of the national median.

Meanwhile, California community banks under $10 billion in assets posted a median 1.04% return on average assets in the fourth quarter, 9 basis points higher than the national number. The state's median 3.57% net interest margin also beat the national median by 16 basis points.

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Farmers & Merchants Bank of Long Beach, California's largest community bank by assets, posted strong loan growth last year as its portfolio increased 22.6% over the course of 2020, compared to a median 18.5% growth for California community banks as a whole. Paycheck Protection Program loans accounted for almost 60% of the bank's nearly $1 billion increase in loans in 2020.

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California, like the rest of the U.S., is seeing more branch closures than openings as banking goes ever more digital. During the first quarter, 88 branches were permanently closed in the state, while only six were opened. Over the last year to March 31, 355 branches were closed and 43 opened.

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Click here to access a refreshable template containing year-end 2020 financial results for California community banks.