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California's CVB to jump over $10B mark with Community Bank deal

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California's CVB to jump over $10B mark with Community Bank deal

In California, CVB Financial Corp. of Ontario is acquiring Pasadena-based Community Bank.

Each Community common share, including unvested restricted stock units, will be exchanged for 9.4595 CVB common shares and $56.00 in cash. CVB will pay approximately 30.0 million shares and $177.5 million in cash in aggregate. Based on the buyer's Feb. 23 closing price of $23.37, that values the transaction at approximately $878.3 million.

SNL calculates the deal value to be 246.4% of book, 247.4% of tangible book and 32.5x earnings, on a per share basis. It is also 23.24% of assets and 30.44% of deposits and carries a one-day premium of 48.92%, based on Community Bank's closing stock price of $186.05 on Feb. 23, and a one-month premium of 47.38%, based on its closing stock price of $188.00 on Jan. 26.

CVB expects the deal to be about 12% accretive to 2019 EPS, excluding one-time costs, but also approximately 11% dilutive to tangible book value per share. The dilution is projected to be earned back in 4.9 years. The internal rate of return is estimated to be higher than 15%.

The deal, subject to regulatory and shareholder approvals, is expected to close in the third quarter. At the end of 2017, Community Bank had approximately $3.7 billion in total assets, $2.7 billion in gross loans and $2.9 billion in total deposits. CVB's Citizens Business Bank had $8.26 billion in assets. On a pro forma basis, Citizens will have an asset size of $12.0 billion after deal completion.

Community Chairman Marshall Laitsch will join CVB's board, and Community shareholders will own an aggregate 21.4% of the resulting entity, according to the press release.

Deal expenses are expected to be around $44 million, pre-tax, according to a separate press release.

CVB Financial will cross the $10 billion asset threshold upon deal completion. It expects one-time expenses of around $2 million to $3 million and yearly recurring expenses between $3 million to $4 million. Lost revenue related to the Durbin Amendment is estimated to be around $1 million to $1.5 million per year.

The deal has a termination fee of $35.1 million, payable by Community Bank to CVB Financial under certain circumstances.

SNL data shows that in California, CVB will expand in Los Angeles County by 10 branches to be ranked No. 17 with a 1.05% share of about $4.24 billion in total market deposits, and will expand in Orange County by four branches to be ranked No. 20 with a 1.04% share of roughly $1.27 billion in total market deposits. Also, CVB will expand in Riverside County by one branch to be ranked No. 12 with a 1.71% share of approximately $455.88 million in total market deposits and will expand in San Bernardino County by two branches to be ranked fourth with a 9.13% share of about $2.06 billion in total market deposits.

Keefe Bruyette & Woods and Morrison & Foerster LLP respectively served as CVB's financial adviser and legal counsel. For Community, it was D.A. Davidson & Co. and Manatt Phelps & Phillips LLP.

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