AmericanWest Bank has been taking nibbles along the West Coast for the last two years, but its latest acquisition amounts to a really big bite.
The $2.4 billion-asset company in Spokane, Wash., announced Tuesday that it would buy PremierWest Bancorp in Medford, Ore., for $16.6 million in cash. With assets of $1.2 billion, PremierWest comes close to matching the combined $1.3 billion of assets represented in the last five deals that AmericanWest Bank has announced since SKBHC Holdings bought it from the bankruptcy court in late 2010.
The PremierWest acquisition is expected to close during the first half of next year and will leave AmericanWest with about $250 million of the $750 million its investors raised to build a West Coast franchise.
As it evaluates additional opportunities, the company has a “strategy, not size,” approach, but management acknowledges that larger acquisitions will likely deliver better returns.
“If you’re going to become a public company, there is a premium for scale,” says Scott Kisting, AmericanWest’s president and chief executive. “But we are looking for the right deals. We want business banks that have high noninterest-bearing deposits. The right deal will be accretive and will be in a market where we will have the ability to grow organically.”
The PremierWest acquisitions goes far toward connecting AmericanWest’s somewhat spread-out operations.
“Oregon has been an important market for us to be in. It connects us with northern California and gets to our goal of being a strong Pacific Northwest player,” Kisting says. “It also puts us in Sacramento, which will allow us to move over to the [San Francisco] Bay from there. Everything about this deal fits into our strategy.”
AmericanWest has also been growing in southern California, with acquisitions in San Diego and the Inland Empire. The company also has a loan-production office focusing on multifamily lending in Santa Monica.
Kisting says that his wish list of places he’d like AmericanWest to be in include Los Angeles; Portland, Ore.; Salt Lake City; San Francisco; and Vancouver, Wash.
Although PremierWest delivers both geographic diversity and sticky deposits in rural communities to AmericanWest, it also includes some baggage. PremierWest was hard hit by the economic downturn. While industry observers have praised management’s efforts to resolve legacy issues, the company’s credit problems remain elevated.
At Sept. 30, PremierWest’s nonperforming assets totaled nearly $60 million, or 5.16% of total assets. That total, however, is down 43% from a year earlier. Additionally, PremierWest has roughly $130 million of classified assets.
“They’ve made some real progress, but they still have a long way to go,” Tim O’Brien, an analyst at Sandler O’Neill & Partners who covers PremierWest, said in an interview.
With the deal’s completion not expected to happen to take place until the first half of next year, Jim Ford, PremierWest’s president and chief executive, says he hopes to deliver a bank with even fewer problems at the sale’s closing.
“We are going to keep working just as hard,” Ford says, adding that the company had been exploring strategic options since 2010.
AmericanWest’s management team is experienced in workouts. The bank was on the verge of failure when SKBHC Holdings rescued it in a bankruptcy sale. With the capital backstop in place, AmericanWest began its acquisition spree during the summer of 2011.
Even though the deal is priced at 43% of tangible book value, O’Brien said it was a good deal for PremierWest. “It is a pretty decent outcome for them,” he said.
The Treasury Department, which invested $41.4 million in PremierWest in early 2009 as part of the Troubled Asset Relief Program, is set to get repaid at a par, although the agency has agreed to extinguish the warrants and waive the $6.6 million of accrued dividend payments that PremierWest owes.
Ford and Kisting declined to discuss in detail their negotiations with the Treasury Department, but some industry observers says the at-par repayment was a bit curious given past discounts associated with acquisitions related to banks with credit issues.
The Treasury Department has also accepted discounts on its stakes in healthy banks through auctions.
“I don’t know that there is necessarily a logical conclusion,” says Rob Klingler, a partner at Bryan Cave who follows Tarp closely. “They could argue that they are taking a discount because of the historic dividend.”
Klingler says that the lack of a discount might also speak to the buyer’s desires. “At the end of the day, the value of the franchise is such that the buyer can proceed without a discount,” he says.