Heritage Commerce Corp (Nasdaq: HTBK) the parent company of Heritage Bank of Commerce, and Presidio Bank (OTCBB: PDOB), which has a North Bay presence, announced they signed an agreement to merge and reorganize.
Under terms of the deal announced Thursday, Presidio will merge into Heritage Bank of Commerce in an all-stock transaction valued at about $200.3 million, or $30.18 per Presidio common share, based on Heritage’s closing stock price of $12.22 on May 16. Heritage total assets would grow to about $4.0 billion on a pro forma basis, and total branches would rise to 17 in the San Francisco Bay Area, after branch consolidation.
Pending regulatory approval, the deal is set to close in the fourth quarter.
“Presidio Bank is a perfect fit for Heritage, as both of our values are aligned with fostering client relationships,” said Walter Kaczmarek, Heritage president and CEO, in the announcement.
He said the combination would give Presidio’s client base a "broader product offering, increased lending limits, and an expanded branch delivery system that now surrounds the San Francisco Bay Area."
Kaczmarek added in a call Friday with investors that the merger accomplished the bank's goal of "[Ringing] the Bay Area with regional business banking locations." He also noted the similar loan and deposit portfolios of both banks, adding the deal would result in cost saving of 50% or $12.1 million in 2020.
Heritage President Keith Wilson said the deal, even after transaction costs, would boost earnings.
Presidio CEO Steve Heitel the two institutions have parallels.
“We have been impressed for some time by Heritage and how their culture and focus on serving their community are so similar to ours,” he said in the news release.
Presidio is a commercial bank based in San Francisco that serves small- to mid-sized businesses and their owners. It also has branches in Palo Alto, San Mateo, San Rafael and Walnut Creek.
As of March 31, Presidio had about $906 million in total assets and a return on average assets of 1.44% for the first quarter.
When the deal closes, three members of Presidio’s board will join the board of directors of Heritage and HBC. Heitel and President Clay Jones would become executive vice president and president of the community business banking group, respectively. Todd Allen, executive vice president and North Bay market president, would have a similar role with HBC.
Shareholders of Presidio would receive a fixed exchange ratio of 2.470 shares of Heritage common stock in exchange for each share of Presidio common stock. The exchange ratio is fixed, and the value of the merger consideration will fluctuate based on Heritage’s stock price. On a pro forma basis, the holders of Presidio common shares will own about 26.5% of the issued and outstanding Heritage common stock.
The board of directors of Heritage and Presidio have approved the transaction, which is subject to customary closing conditions, including the approvals of state and federal bank regulatory agencies and the shareholders of both Presidio and Heritage and other conditions specified in the Agreement.
D.A. Davidson & Co. was the financial adviser to Heritage in the transaction. Buchalter of Los Angeles was legal counsel to Heritage. Sandler O’Neill + Partners was financial adviser to Presidio. Manatt, Phelps & Phillips, LLP was legal counsel to Presidio.