The takeover price for a troubled Oregon bank has fallen 29% - to less than its shares' market value. But the shareholders are likely to go for the deal anyway, an investment banker says.
Under a September agreement, the price for Northern Bank of Commerce in Portland fell automatically because it put money into its loan-loss reserves, reducing shareholder equity. 
"I don't see Northern Bank shareholders backing out," said Robert Rogowski, principal at Columbia Financial Advisors, a Seattle investment banking firm. "They don't have any attractive alternatives."
Cowlitz Bancorp of Longview, Wash., announced in early September that it would pay up to $7.3 million in cash and stock for 5-year-old Northern, which is under a disciplinary order from the Federal Deposit Insurance Corp. But that sum has now been chopped to $5.2 million.
Cowlitz is now offering 0.5165232 shares of its own shares for each of the more than one million of Northern outstanding, instead of the 0.825842 originally offered.
The deal works out to $2.58 per Northern share, 20% below the midday price Thursday of $3.2343.
Cowlitz, the $199 million-asset parent of Cowlitz Bank and Bay Bank, operates six branches in Washington. Northern Bank has $60 million of assets and operates eight branches in retirement communities in and around Portland.
Northern has been under an FDIC cease-and-desist order since last summer for underperforming loans and lack of capital. If the bank is not sold, it is in danger of being shut down.
"I hope Northern Bank shareholders realize it is in their best interests to merge with us," said Benjamin Namatinia, chairman and chief executive officer of Cowlitz. "I think we can fix that bank."
William V. Spicer, chairman of Northern Bank, could not be reached for comment. However, in recent proxy statements filed with the Securities and Exchange Commission, Northern Bank's board urged shareholders to approve the deal.
Cowlitz changed the exchange ratio because Northern has added $450,000 to its loan loss reserve, and thus diminished its equity.
The price also hinges on potential losses in Northern's loan portfolio. Cowlitz would put $2 million in cash in a two-year escrow account to hedge against any future losses.
The $2 million, minus any funds required to cover losses in the portfolio, would be distributed among Northern shareholders in 2002 if the deal is closed.
Last summer the FDIC cracked down on Northern because it had insufficient equity capital and lacked a management team to support its low-quality loan portfolio.
In the third quarter of 1999 the bank lost $103,720, or 8 cents per share, having earned $123,338, or 9 cents per share, in the same period in 1998.
A shareholder meeting to vote on the deal will be held Feb. 17. If approved, the deal is expected to close in early March.
