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Cascade Bancorp (CACB) in Bend, Ore., has outbid another company to snag Home Federal (HOME) in Nampa, Idaho.
October 23 -
Heritage Financial (HFWA) in Olympia, Wash., has agreed to buy Washington Banking (WBCO) in Oak Harbor. Heritage will pay about $265 million in cash and stock for Washington Banking, the companies said Wednesday.
October 23 -
The acquisition-minded Heritage Financial and Washington Banking are said to be seeking targets to nearly double their size, motivated in part by the recent Umpqua-Sterling deal.
September 16 -
Umpqua Holdings' agreement to buy Sterling Financial is the latest in a series of deals this year to pair similarly sized banks, creating a new crop of midsize financial institutions.
September 12 -
The Federal Reserve Bank of San Francisco has terminated its regulatory action against HomeStreet in Seattle.
March 27
Bank wheeling and dealing in the Pacific Northwest hit a fever pitch this week, and it may only get more intense.
Two deals were announced and another terminated after the markets closed Wednesday. There are roughly a dozen community banks with assets between $1 billion and $20 billion in the region, and in the last year all of them have tried their hand at M&A. A couple of them are even buying each other.
"What everyone has been calling for is finally here," says Jacquelynne Chimera, an analyst at Keefe, Bruyette & Woods, who covers several of the banks in the region. "I thought it would start out on the smaller scale and then we would see the deals get bigger, but necessity is the breeder of invention."
M&A in the region had already been busy. Umpqua Holdings (UMPQ)
Then, in a couple hours Wednesday afternoon, Heritage Financial (HFWA) in Olympia, Wash., announced
It is a "significant pickup in deal volume" in the region, says Kalan MacGinley, a managing director at Macquarie Capital, who counts six deals in just the past three months. Macquarie advised Cascade on its bid for Home Federal.
"Activity has been primarily driven by more transparent balance sheets, reasonable valuations, tired management and boards, and a strategy to both supplement organic growth and also to enhance the bottom line through removal of operational duplication," MacGinley says.
The following is a look at the three moves made on Wednesday and how they fit into a changing market in the Northwest.
Heritage Financial and Washington Banking
Both banks are solid performers that soared through the downturn and bought some failed banks.
Heritage also completed two small acquisitions of open banks recently. Last month Tim O'Brien, an analyst at Sandler O'Neill, published research notes saying the $1.7 billion-asset Heritage and the $1.6 billion-asset Washington were refocusing their M&A interests on bigger deals. O'Brien didn't tie the two to each other, but observers have long said they were a good fit for each other.
The companies complement each other in that they skirt opposite sides of Seattle.
Washington Banking "attacks from the north, we attack from the south," said Brian Vance, the chief executive of Heritage who will continue to lead the combined organization, during a conference call on Thursday. "We have Seattle covered and surrounded."
Vance later added that the deal was about more than having a larger franchise to leverage in targeting Seattle. The pairing would create a franchise that stretches from the Canadian border to Portland, Ore.
"There is tremendous opportunity throughout the footprint," Vance says. Throughout the conference call, Vance returned to the point that the combination builds scale. From an earnings standpoint, the deal contemplates a 13% accretion to earnings in 2014 and 24% in 2015. Additionally, Vance says the larger size would give the company better cachet within the market, an opportunity to attract bigger deals and new lenders or lending teams.
The $265 million deal equals 149% of Washington Banking's tangible book value, which is above current industry averages, but the market liked the deal. On Thursday, Heritage's stock rose 2.52%, to $16.29 per share.
Cascade Bancorp and Home Federal
The $1.4 billion-asset Cascade has staged an impressive turnaround since the downturn, when its capital levels got dangerously low. It shrank its balance sheet by $1 billion roughly the size of Home Federal's assets.
Besides bulking up its balance sheet, the $266 million deal is largely a chance to take out an in-market competitor in the greater Boise area. Home doesn't take Cascade into any new markets, but it gives it the opportunity to cut 24% out of the companies' combined costs or 65% of Home's costs. Cost savings in most transactions average 30% or so.
"We've coveted this franchise," Cascade CEO Terry Zink said in a conference call. "It brings out the value Cascade had stored up."
On Thursday, Cascade's stock fell 5.84%, to $5.64 a share, breaking with the recent trend of investors essentially validating deals by trading the buyer's higher. Zink said in an interview that he thinks the investors will come around.
"As the deal gets more scrutiny I think it will recover easily," Zink says. "I'm not the least bit worried. That is normal."
Banner Corp.
The $4.2 billion-asset Banner had the chance to preserve its deal to buy Home Federal, but chose not to raise its $197 million offer. It would have been a game-changer for Banner in Boise, but was not worth upping its bid, analysts say.
The bad news is that it leaves Banner as the only player in the region without a partner.
"We liked that the Home deal seemed to give Banner a seat at the table as consolidation increasingly takes hold in the region," Joseph Fenech, an analyst at Sandler O'Neill, wrote in a research note on Thursday. "There aren't many targets of size in the region. As the larger players begin to pair up, the risk is that those that don't participate are left lacking appropriate scale."
That could make Banner a potential seller, says Tim Coffey, an analyst at FIG Partners.
"The Home deal took them out of the basket of banks that would sell and now they are squarely back in," Coffey says.
Down the road, Coffey said Heritage could look to Banner to fill in its Seattle presence. Columbia Banking System could be a good fit for Banner, too, Chimera said.
On the flip side, Banner under the direction of CEO Mark Grescovich, has done well at growing organically. It has been especially successful in taking advantage of market disruption, Chimera says. With Cascade's planned cost cuts and Washington Federal occupied with its planned acquisition of the Bank of America branches, Banner could end up doing well in Boise on its own.
Grescovich "seems excited about the organic prospects," Chimera says.
The market apparently does, too. On Thursday, Banner's stock was up 1.81%, to $38.85 a share.
