-
Banner Corp. (BANR) in Walla Walla, Wash., has agreed to buy six branches in Oregon from Sterling Financial (STSA) in Spokane, Wash.
February 19 -
These deals are hard to put together but are well worth it -- if management teams can get through the problems of working together. Sterne Agee's Michael Barry and Daryle DiLascia explain.
February 14 -
Nobody has told banks in the northwestern U.S. that bank M&A is in the doldrums. Two deals were announced and another terminated there after the markets closed Wednesday, and that will put pressure on banks in the region to keep buying each other.
October 24 -
Home Federal Bancorp was looking for ways to grow its earning assets as the benefits of FDIC loss shares from two failed-bank deals faded. Lacking good prospects, it decided to sell itself to Banner Corp. More banks could find themselves in the same boat.
September 25 -
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
Banks often pay good money to gain market share, but imagine getting paid to do it and on the coast, to boot.
Banner Corp. (BANR) in Walla Walla, Wash., said Wednesday that it
"We were interested in a strong community bank acquiring these and the [Justice Department] and Fed wanted the same thing," says Dan Sullivan, Umpqua's executive vice president of strategic initiatives. "We needed a bank that could come into the market and foster business lending, consumer lending and other banking services. As we looked at the potential bidders, Banner came up."
For the $4.4 billion-asset Banner, the deal, which includes $226 million in deposits and $95 million in loans, is a small but good one, industry observers say. Besides being paid $7 million to take a top market share position, it incrementally helps Banner deploy some capital, slightly improves its loan-to-deposit ratio and provides another way to build earnings.
"This is a financially attractive transaction," says Lloyd Baker, Banner's chief financial officer. "It is franchise that has established itself with loans and deposit. With a 95% loan-to-deposit ratio, we are always concerned that we can adequately fund loans. And [the deal] brings us additional earnings that should create some additional efficiencies."
If the deal is so good, why is Banner getting paid to take it? Geography, Baker explains.
"The deal needed to be financially attractive to stretch our franchise," he says.
In announcing the mega-deal between Umpqua and Sterling, the parties assumed that there would likely be concentration issues that would need to be resolved before regulators would bless the arrangement. Such problems or opportunities for others could become more common as banks
For the $10 billion-asset Sterling and the $11.4 billion-asset Umpqua, the overlap manifested itself in two places: Douglas County, where Umpqua's bank is based, and adjacent Coos County. The counties are small: Coos County has $750 million in total deposits, while Douglas has $1.5 billion in deposits. Each county has less than 10 banks doing business there, including Umpqua, Sterling and all of the nation's biggest banks.
At June 30, Umpqua was the top deposit holder in those markets, with a 62.5% share in Douglas and 36.4% in Coos. Sterling has 1.4% and 28%, respectively, in those counties. Given Umpqua's existing dominance, regulators wouldn't allow it to get bigger through acquisition.
In working with the Justice Department and the Fed, Sullivan says Umpqua came up with a list of about 10 qualified buyers. It then worked with an investment bank to market the sites. Given that the $2 billion Sterling deal was hamstrung until another bank agreed to buy the branches, the ability to execute quickly also mattered.
"This was an important consideration for regulatory approval so execution was more important than the last dollar," Sullivan says. "Banner was great to work with."
Banner is on the hunt for more acquisitions. Last year it
Among analysts, there is a general feeling that Banner needs to do something to become more efficient and avoid getting left behind in a
"They have a robust expense base that they need to start leveraging with additional revenue, and growth through acquisition is a way to do it," says Tim Coffey, an analyst at FIG Partners. "I think this was this was just the next thing that came up, but their first preference is to do a whole bank deal."
Still, Coffey says Banner has shown impressive organic loan growth, so it could also do that in coastal Oregon.
In baseball terms, the branch deal represents "a single" for Banner, says Jeff Rulis, an analyst at D.A. Davidson. "It is not too much of a distraction from other opportunities," he says.
The deal could help Banner identify other acquisition opportunities, Jacquelynne Chimera, an analyst at Keefe, Bruyette & Woods wrote in a note to clients. It "opens up additional M&A possibilities as it increases [Banner's] footprint, making other surrounding franchises seem more strategic than they otherwise would have," she wrote.
