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Valley Republic agrees to purchase offer by Chico-based bank

Bakersfield's Valley Republic Bank is expected to be acquired by the end of this year by a much larger institution based in Chico under a proposed transaction observers say would probably make more and bigger loans available to local businesses.

Directors of parent company Valley Republic Bancorp voted unanimously Monday to accept TriCo Bancshares' offer of about $165.6 million in stock. Valley Republic's shareholders would still have to sign off on the deal, as would federal and state regulators.

The acquisition would, by all accounts, afford Valley Republic substantial autonomy and allow it to expand its offerings, such as mortgage lending and investment services, while serving the geographical expansion ambitions of Tri Counties Bank. Valley Republic's chairman said Wednesday he expects the transition to be seamless and beneficial to all parties.

But there is some concern TriCo's purchase of one of only two commercial banks based in Kern County may come at a cost of local responsiveness. Cal State Bakersfield economist Richard Gearhart cited a risk that Valley Republic's loss of independence might lead to stricter lending guidelines and less leeway for local industries.

"I’d say that this is probably a significant net positive for most of the clients at Valley Republic, but some may lose out," he said by email.

Valley Republic's stock price climbed almost 10 percent on news of the proposed deal to close Wednesday at $37, its highest in at least the past 12 months. Meanwhile, shares of TriCo closed down 28 cents, or less than 1 percent, settling near the middle of their price range during the past year.

Valley Republic's 11-member board has been offered a single position on TriCo's board, which currently has 12 members. The transaction would give existing Valley Republic shareholders about 12 percent ownership of TriCo's stock.

Tri Counties, founded 46 years ago, has concentrated its expansion in Northern California but 25 years ago opened a loan production office in Bakersfield that now serves as a branch office. The bank also has offices in Visalia and Fresno.

Twelve-year-old Valley Republic, by contrast, operates almost entirely in Kern County, with three full-service offices in Bakersfield and one in Delano, not including a loan production office in Fresno.

TriCo Chairman, President and CEO Richard "Rick" Smith said in a phone interview his bank can address Valley Republic's capital constraints and even help local efforts to develop more housing through the issuance of construction loans and purchase of tax credits that often fund development of apartment complexes.

He noted the proposed acquisition would be TriCo's fifth in 10 years, during which time its total assets have quadrupled.

While trimming staff to save money isn't a primary goal of the deal, he noted the company has identified a cost savings of about 17 percent of Valley Republic's non-interest expense. He predicted some staffing consolidation and said anyone laid off locally might find a job elsewhere within the organization.

"We're not trying to get rid of people," he said. "We're trying to build a bigger and better organization."

Valley Republic Chairman Gene Voiland called the deal a "win-win" for both banks and local customers and shareholders. He termed it not just a nice geographical fit but a cultural one as well, in that both organizations focus on quality service.

President and CEO Geraud Smith will continue to head up the region's operations, Voiland said, and existing staff will continue to run somewhat autonomously with an uncommon approach to service and local loan approval authority.

"We don't see those things changing at all," Voiland said in a phone interview Wednesday. "The same team is going to run it that is running it now. That is very important to us."

Beyond that, the acquisition should help the local operation grow and pay for regulatory costs, Voiland said. He noted there will be an advisory board made up of Valley Republic board members that will meet with TriCo's CEO quarterly, though the board will have no actual authority and Smith said it's unclear how long the advisory group will remain in place.

Mark Evans, a professor emeritus of economics at CSUB, said by email there is a risk TriCo will offer somewhat less support for local nonprofits than the level Valley Republic has demonstrated. But he asserted the greater scale of lending offered by the deal will help customers, and in general, being part of a larger organization will allow Valley Republic to better keep up with technological changes.

Gearhart's email said some Valley Republic customers may choose to go elsewhere if they don't feel the same, strong local connection.

"I know Bakersfield is large, but there is still the sentiment that you are banking at a local institution who knows the area," he wrote. "If you don’t have that, some people may be more willing to go to better capitalized, more well-known national banks."

Gearhart pointed to potential benefits of bigger local loans, perhaps more favorable terms such as lower interest rates and easy access to a wider inventory of ATMs. Another benefit would be an improved ability to weather economic downturns, he added.