Oct 22 - Heritage Oaks Bancorp, Paso Robles, Calif., (Nasdaq: HEOP) and Mission Community Bancorp, San Luis Obispo, Calif., (OTCQB: MISN) have signed a definitive agreement and plan of merger whereby Heritage Oaks will acquire Mission Community and merge their respective banks, Heritage Oaks Bank and Mission Community Bank. Under the terms of the agreement, holders of Mission Community common stock, warrants and options will receive aggregate cash consideration of $8 million and aggregate stock consideration of 7,541,353 shares of Heritage Oaks common stock. Based on the shares outstanding of Mission Community as of Sept. 30, 2013, each share will be exchanged for approximately 0.8614 shares of Heritage common stock and cash consideration of approximately 19 cents. The total value of the merger consideration is $56.4 million, based on a $6.42 closing price of Heritage Oaks common stock on Oct. 18, 2013.
Heritage Oaks expects that the transaction will be immediately accretive to EPS, excluding deal related and restructuring expenses in 2014, and expects earnings accretion to be in excess of 20 percent in 2015. Heritage Oaks expects tangible book value dilution of approximately 5.7 percent at close to be earned-back within 2.75 years. The transaction is currently expected to close in the first quarter of 2014, subject to customary conditions, including the approval of bank regulatory authorities and the shareholders of both companies.
On completion of the transaction, the combined bank will be one of the largest community banks headquartered on the Central Coast of California, and will operate under the Heritage Oaks name and brand. The combined organization will have approximately $1.5 billion in assets, $1.3 billion in deposits, and $1 billion in loans, and will operate primarily in San Luis Obispo, Santa Barbara and Ventura counties.
"This is an exceptional opportunity to combine two well-respected banks that share a deep commitment to our local communities," said Simone Lagomarsino, president and CEO of Heritage Oaks Bancorp and its bank. "The merger of Heritage Oaks and Mission Community provides an exciting future for customers, the community and shareholders. The combined institution will continue to provide the same level of outstanding personalized banking service, to which the customers of both institutions have become accustomed, while offering an expanded product array."
James Lokey, chairman and CEO of Mission Community Bancorp, said, "The combination of Mission Community with Heritage Oaks produces tremendous benefits for customers and shareholders. Mission Community shareholders will be exchanging their shares into Heritage Oaks stock, which is a strong currency with the potential for greater overall returns."
Lagomarsino further noted, "This transaction represents a unique opportunity to provide significant value for the shareholders of both organizations. Because of the overlap of Mission Community Bank's branches with ours, we expect to reduce total operating costs by approximately $9 million per year, once all of the synergies have been realized, representing a reduction of approximately 50 percent of current Mission Community's noninterest expense, and 17 percent of the combined pro forma company core noninterest expense. We believe the combination of these organizations creates a more valuable community bank franchise, with a low cost core deposit base, strong capital ratios, attractive net interest margins, lower operating costs and better overall returns for the shareholders of the combined institution. It also creates a banking platform that is well positioned for future growth, both organically and through acquisitions."
On completion of the transaction, the combined company board will have 13 directors, comprised of the current 11 Heritage Oaks directors and two representatives selected by Mission Community. Michael J. Morris will be the chairman of the combined company and combined bank and Simone Lagomarsino will be president and CEO of both. Senior executives will predominately be from Heritage Oaks, while managers and associates will be from both organizations. The combined company will remain headquartered in San Luis Obispo County.
Certain shareholders of both organizations, and their related interests, have agreed to vote in favor of the transaction, including Carpenter Community BancFunds (79 percent) and Palladium Equity Partners (8.8 percent) of Mission Community; Patriot Financial Partners (14.7 percent) and Castle Creek Capital Partners (9.8 percent) of Heritage Oaks. All current directors and senior executive officers of both organizations have also signed agreements to vote in favor of and support the transaction. On closing of the transaction, the largest institutional shareholder will be Carpenter Community BancFunds (18.2 percent) followed by Patriot Financial Partners (11.3 percent) and Castle Creek Capital Partners (7.6 percent).
The transaction is intended to qualify as a tax-free reorganization for U.S. Federal income tax purposes and Mission Community shareholders are not expected to recognize any taxable gain or loss in connection with the share exchange to the extent of the stock consideration received. After completion of the transaction, Heritage Oaks existing shareholders are expected to own approximately 77 percent of the combined entity and Mission Community shareholders are expected to own approximately 23 percent.
Sandler O'Neill acted as financial advisor to Heritage Oaks in the transaction and delivered a fairness opinion to the board of directors. Manatt, Phelps & Phillips LLP served as legal counsel to Heritage Oaks. D.A. Davidson & Co. acted as financial advisor to Mission Community and delivered a fairness opinion to their Board of Directors. King, Holmes, Paterno & Berliner served as legal counsel to Mission Community.
About Heritage Oaks Bancorp
With $1.1 billion in assets, Heritage Oaks Bancorp is the holding company for Heritage Oaks Bank, which operates as Heritage Oaks Bank and Business First, a division of Heritage Oaks Bank. Heritage Oaks Bank has its headquarters and two branch offices in Paso Robles, two branch offices in each of San Luis Obispo and Santa Maria, single branch offices in Cambria, Arroyo Grande, Atascadero, Templeton, and Morro Bay, as well as loan production offices in Goleta and Ventura/Oxnard, all in California. Heritage Oaks Bank conducts commercial banking business in the counties of San Luis Obispo, Santa Barbara, and Ventura. The Business First division has one branch office in Santa Barbara. Visit Heritage Oaks Bancorp on the Web at www.heritageoaksbancorp.com.
About Mission Community Bancorp and Bank
Mission Community Bancorp is a bank holding company for Mission Community Bank and Mission Asset Management Inc. Mission Community Bank is a locally operated community bank, which first opened its doors in 1997. There are full-service Mission Community Bank offices in San Luis Obispo, Atascadero, Santa Maria, Paso Robles and Arroyo Grande, and a loan production office in Oxnard, all in California. The bank's administrative headquarters and Small Business Banking Center are located in San Luis Obispo at 3380 South Higuera Street. For more information, visit www.MissionCommunityBank.com.