NEW YORK ( TheStreet) -- PacWest Bancorp ( PACW) took a step to expand its lending business by agreeing to merge with Los Angeles midmarket lender CapitalSource ( CSE) for about $11.64 per share, or about $2.3 billion in cash and stock. The merger, announced late Monday, is structured as a tax-free merger under which CapitalSource shareholders will receive $2.47 per share in cash and 0.2837 shares of PacWest common stock for each CapitalSource share they own. The merger is valued at about 1.66 times tangible book value. It is expected to close in the first quarter, pending regulatory and shareholder approval. CapitalSource focuses on asset-based and commercial lending to small and mid-market companies, particularly in the technology and healthcare sectors, usually generating loans up to $50 million. CapitalSource operates 21 branches in California that will be added to PacWest's 75. The target had $6.4 billion in total loans at the end of the second quarter. The new combined company will have $15.4 billion in assets on a pro forma basis as of June 30, across 96 branches in California. "The combination of these two franchises will create a formidable company going forward, with a strong balance sheet and capital base, attractive margins and good earnings momentum," PacWest CEO Matt Wagner said in a statement. Wagner will lead the new combined company, while CapitalSource CEO James Pieczynski will stay on as president. The combined company, which will be based in Los Angeles, will be 45% owned by PacWest and 55% by CapitalSource. PacWest will nominate eight directors to the new board, while CapitalSource will nominate five members. The two companies expect to take on about $80 million in merger-related expenses. In November, PacWest, also based in Los Angeles, acquired another California rival, First California Financial Group, for $231 million in stock. JPMorgan Securities LLC's John Simmons, Eric Warmstein and Sean Carmody advised CapitalSource. Matthew Guest and Edward Herlihy from Wachtell, Lipton, Rosen & Katz provided legal counsel. Jefferies LLC's Frank Cicero and Caspar Bentinck, Castle Creek Financial LLC's John Eggemeyer III and Goldman, Sachs & Co.'s Todd Owens, Mike Esposito and Eric Long advised PacWest. A Sullivan & Cromwell LLP team of Patrick Brown, Stanley Farrar, Janine Waldman, Matthew Friestedt, Rebecca Coccaro and Ronald Creamer Jr. represented PacWest. JPMorgan provided a fairness opinion to CapitalSource's board, while Jefferies did the same for PacWest's board. CapitalSource shares closed 22% higher, to $11.97, on Tuesday, with its market capitalization near $2.3 billion. PacWest shares closed 7.1% higher, to $34.77 on Tuesday, with its market cap near $1.3 billion. Neither PacWest nor CapitalSource returned calls on Tuesday.