Washington Federal (WAFD) of Seattle is bulking up in Oregon with an agreement to buy South Valley Bancorp of Klamath Falls for up to $72.7 million in cash and stock.
The $13.7 billion-asset Washington Federal has bought two failed banks since 2010 and its deal for the $868 million-asset South Valley would be its first open bank acquisition in more than four years. Washington Federal raised about $300 million in 2009 for the purpose of making acquisitions.
South Valley had attempted to raise capital last year, but canceled a planned initial public offering in November because of market conditions.
The company reported a net operating loss of $4.2 million for 2011 after earning $2.7 million for 2010, according to the Federal Deposit Insurance Corp.
Under the deal, each outstanding share of South Valley common stock would be exchanged for .2962 shares of Washington Federal common stock. South Valley’s shares were valued at $5, representing 51% of the company’s tangible book value as of Dec. 31, Washington Federal.
Washington Federal may pay South Valley shareholders up to another $39 million in cash depending on if and when certain assets are collected. If the assets are collected before the deal closes, South Valley shareholders will receive another $5.81 per share. If none of the assets are collected prior the merger being completed but are collected within five years of the deal, South Valley shareholders will receive an additional $2.97 per share.
After the deal is completed, the combined company would have about 190 branches in eight western states and roughly $14.4 billion in assets. South Valley’s 24 branches would almost double Washington Federal's branch network in Oregon.
"This transaction will enhance our presence in southern and central Oregon, and materially expand our business banking and commercial real estate businesses in a state with improving business conditions,” Roy M. Whitehead, Washington Federal’s president and chief executive, said in a news release.
Washington Federal expects the deal to be accretive to earnings upon closing. It should be completed in the third quarter.