Citizens Business Bank will acquire County Commerce Bank in a cash-and-stock deal, shrinking the number of community banks but vastly increasing the region’s lending capital.

The proposed merger would strengthen Citizens’ commercial banking presence in Ventura County and fuel its regional expansion.

Ontario-based Citizens, which has maintained a strong presence in the San Fernando Valley, would gain County Commerce’s branches in Ventura, Oxnard, Camarillo and Westlake Village. County Commerce customers will have access to more capital and additional financial products and services.

Chris Myers, Citizens president and CEO, said that Ventura County has strong agriculture and small business sectors and the deal would allow the bank to expand throughout Santa Barbara County and beyond.

“It’s all about the geographic expansion. It’s not about the cost,” he told the Business Times. “It’s about us building market penetration in Ventura and Santa Barbara counties to become the regional bank of high quality there.”

In exchange for all of County Commerce’s common stock and options, Citizens would pay $41.25 million — half in stock and half in cash. That equates to $16.79 per County Commerce share.

“If I was a shareholder of County Commerce, I’d want some stock too because I’d want to see some upside,” said Jeff Hass, an accountant at Camarillo-based accounting firm Farber Hass Hurley. “Getting cash is nice but there’s no upside.” County Commerce shareholders could also defer taxes on the stock, he said.

In these types of deals, it’s best when shareholders have some skin in the game, Myers said.

“From the County Commerce side, they get a very liquid stock,” he said. “It actively trades almost 500,000 shares a day. Our stock also pays a 3 percent cash dividend.”

Citizens, which is owned by its parent company CVB Financial Corp., has produced positive earnings in 154 consecutive quarters and paid a cash dividend in 104 straight quarters.

Citizens’ net earnings were $27.9 million or 26 cents per diluted share for the third quarter, the second highest quarter on record.

County Commerce shareholders would hold approximately 1.16 percent of CVBF’s outstanding common stock if the merger goes through.

“Once (County Commerce) shareholders get that stock, they can sell it or can hang on to it and get a good return on it,” said Joe Kreutz, chairman and CEO of County Commerce. “And since (Citizens’) legal lending limit is more than ours, we can service any business in Ventura County and retain all of the loan.”

County Commerce would operate as Citizens Business Bank after the merger closes, which is expected in the first quarter of next year. It would offer an expanded branch and ATM network and a broader range of products and services. The bank has $252 million in assets and $216 million in total deposits.

Citizens does not plan on closing any branches and would retain the majority of the banks’ employees, the bank CEOs said.

The deal encapsulates a continued pattern of tri-county banks growing through acquisitions. Increasing regulatory standards have squeezed out smaller banks as they’ve been forced to scale up their compliance staff.

“It is incredibly expensive for a small bank to make sure compliance is on target. The regulators are absolutely ruthless,” Hass said. “You can’t do it part time, you need a whole infrastructure dedicated to compliance to survive.”

Take Santa Barbara-based American Riviera Bank, which plans to merge with The Bank of Santa Barbara. Ken Jacobsen used to wear multiple hats, one being a part-time compliance officer, he said. The American Riviera executive vice president said it has had to scale up to two full-time employees.

“Due to some of these compliance issues, we will see a shakeout with smaller banks and there will be more consolidation,” Peter Rupert, the executive director of the UC Santa Barbara Economic Forecast Project, previously told the Business Times.

The Central Coast has seen a merger wave in recent years with American Riviera planning to buy The Bank of Santa Barbara, Sierra Bank acquiring Santa Clara Valley Bank, Heritage Oaks snatching up Mission Community, and Union Bank acquiring Santa Barbara Bank & Trust in a deal that reshaped the regional banking landscape.

Citizens snatched up former SBB&T employees Don Toussaint and Phil Morreale to make a play in the Ventura and Santa Barbara markets. It is opening a branch in Santa Barbara next month at 1101 Anacapa St.

“The merger likely has to do with the void Rabobank left when it transitioned to ag and retail,” Hass said. “Citizens saw a great opportunity since it focuses on businesses.”

Citizens has entered the Santa Barbara and Ventura markets with the backing of parent company CVB Financial, which has assets of about $7.7 billion.

Few small community banks remain, including American Riviera, Ojai Community Bank, Community Bank of Santa Maria and Coast National Bank. Larger independents include Heritage Oaks, Montecito Bank & Trust and Community West Bank.

“For the really small businesses, the community banks are key,” Hass said. “There is more local decision-making and more hand-holding. They are flexible and understanding when businesses are going through tough times.”

County Commerce shares rose $2.78, more than 20 percent, to $16.13 on the first day of trading after the proposed merger was announced. Shares were trading at $16.21 as of press time.

“Think of how many banks were taken down by the recession,” Kreutz said. “Ventura County had 11 over the 12 years we’ve been here and most of them didn’t have a real pleasant ending.”

• Contact Alex Kacik at akacik@pacbiztimes.com.