FirstBank NW Corp.'s rejection of a private investment group's unsolicited $112 million offer so it could shop for higher bids paid off handsomely when the Clarkston, Wash., company struck a deal that would pay its shareholders 51% more.
Sterling Financial Corp. in Spokane announced Monday that it is buying the $846 million-asset FirstBank for $169.6 million in cash and stock, or $27.16 a share.
FirstBank asked four banking companies, including Sterling, to submit bids after turning down an offer this year from Crescent Capital VI LLC of Bellevue - which owns a 9.1% stake in the bank.
Explaining why the board accepted Sterling's offer, Clyde Conklin, FirstBank's president and chief executive, said in a conference call, "Our shareholders are receiving a premium on our stock, in the currency of a company that is a leader in regional community banking."
FirstBank has 20 branches, in Idaho, Washington, and Oregon, as well as 11 real estate and agricultural loan production offices.
The deal would boost Sterling's asset total to about $9.2 billion and its branch total to 153 in four states, though Daniel G. Byrne, its chief financial officer, said it would close 10 overlapping ones and consolidate back offices by February 2008.
"This deal gives us the ability to be more efficient in 12 marketplaces," Mr. Byrne said in an interview after the conference call.
He added that Sterling would gain significant market share in Idaho, particularly in the high-growth markets of Boise and Couer d'Alene. As of June 30 it had the No. 16 deposit share in the state, according to the Federal Deposit Insurance Corp.; the acquisition would catapult it to No. 5.
FirstBank shareholders were clearly thrilled with the deal. The stock rose 16.2% in heavy trading Monday, to $25.60 a share. Sterling's stock fell 5.1%, to $29.60.
James Bradshaw, an analyst with D.A. Davidson & Co. in Portland, Ore., said he was somewhat surprised by the price. He said he had expected the winning bidder to offer about $22 a share, considering that FirstBank's first-quarter return on equity, 11.37%, was slightly above the average for savings banks of its size nationwide.
"But it might have been a more competitive merger process than I would have guessed," he said.
Still, Mr. Bradshaw said the price - 2.7 times tangible book value - is reasonable. "Sterling can get significant cost savings, because there's significant overlap in a lot of their markets, and they'll know how to operate it to make it more profitable."
Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Securities Research Corp. in Nashville, said he does not expect Crescent or any of the other bidders to increase their offers, because none would likely be able to achieve the type of savings through consolidation that Sterling could.
Calls to Crescent officials were not returned by press time.
Crescent buys stakes in community banks, but it has never owned a bank outright.
One of its cofounders, Steve Wasson, had offered to succeed Mr. Conklin as the CEO of FirstBank if its board had accepted Crescent's bid. Before Crescent was formed in 2002, Mr. Wesson had worked for seven years at U.S. Bancorp, most recently as an executive vice president and manager of business banking in Portland. Before that he had worked at Bank of America for 23 years.
Mr. Rabatin said one challenge for Sterling would be replacing the certificates of deposit on FirstBank's books with core deposits. At March 31, 40% of the target's branch deposits were time deposits.
"Sterling's grown loans so fast - 20% in the first quarter - that they need all the low-cost funding they can get," he said. "But over all, it's a good transaction. There's opportunity for consolidation in Spokane, and it also helps them build some market share in the high-growth markets in Idaho."
Last year Sterling Savings Bank converted from a thrift to a commercial bank charter because, as a thrift, it was starting to bump up against its limits on commercial lending.
The deal for FirstBank, a thrift holding company, is Sterling Financial's fifth since 1998. Its $63.8 million deal for the $435 million-asset Lynnwood Financial Group Inc. in Washington is slated to close next month.
