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Bay Commercial CEO: ‘The combined bank still a community bank’WALNUT CREEK/NAPA — The merging of Napa’s struggling Charter Oak Bank into Bay Commercial Bank joins two similarly sized institutions to create a nearly $300 million community bank under the Bay Commercial name.

Pending regulatory approval, the deal should be complete in January or February, according to Brian Kelly, the current president and chief executive officer of Charter Oak. He will remain with the bank and be the director of the North Bay region.

[caption id="attachment_26647" align="alignleft" width="108" caption="George Guarini"][/caption]

“Were it not for Brian staying with the bank, we would not have gone through with the deal,” said George Guarini, president and CEO of Bay Commercial. “Brian was the key.”

Charter Oak Bank last quarter had a capital ratio of 5 percent, half of the 10 percent considered healthy by regulators.

Most of the nonperforming loans were real estate-oriented, Mr. Kelly said.

“We attempted several measures before considering being acquired,” he said. “We feel with this route, we will have better product lines for clients.”

“This move is a great next step in our strategy to leverage our strong capital position in markets with attractive demographics and long-term growth potential,” said Mr. Guarini. “We’re also pleased to welcome Charter Oak employees into the Bay Commercial Bank family, while providing them the resources they need to continue providing clients the high level of personalized service they’ve come to expect.”

Mr. Kelly said most of the employees will remain with the new bank, which will be roughly twice the size of each current bank, both in assets and employees.

“The combined bank is still a community bank,” Mr. Guarini said. “It will do a lot for business in the new regulatory climate.”

He said while he is not trying to become a large bank, he realizes that with regulation it is easier for a small community bank to be a little bigger in this economy.

The transaction is all-stock with 0.1579 shares of Bay Commercial Bank common stock being issued for each outstanding share of Charter Oak Bank.

Based on Bay Commercial Bank’s Oct. 29 stock price of $7.80 per share this equates to a total deal value of $2.3 million, or a price of $1.23 per share.

The acquisition of Charter Oak will provide Bay Commercial with $135.6 million in assets, including $115.4 million in loans and $115.4 million in deposits in the two bank branches.

The two companies signed a definitive purchase agreement for the transaction, which is expected to close in the first quarter of 2011. Bay Commercial Bank expects the transaction to have a negligible impact on tangible book value per share and over the next 12 months expects to achieve significant cost savings resulting in accretion to earnings per share. Upon closing of the Charter Oak acquisition, Bay Commercial expects to maintain well-capitalized Tier 1 and total risk-based capital ratios.

“We’re very pleased to have found an acquirer with experience in our markets,” Mr. Kelly said. “In Bay Commercial Bank, we have a strong and profitable partner that will allow us to maintain our focus on community banking clients, while offering employees and investors attractive growth prospects. This is a great transaction for our clients, our employees and our shareholders.”

Bay Commercial Bank was incorporated in 2004, the same year Charter Oak opened. As of Sept. 30, Bay Commercial had total assets of $164.0 million, loans of $127.6 million, total deposits of $130.2 million and total shareholders’ equity of $33.5 million.

Charter Oak Bank was incorporated in 2004 and has offices in Napa and St. Helena. After this is complete, Mr. Guarini said the bank will continue to look into other markets.

“We are really excited and the employees are excited,” he said.