Yesterday it was announced Washington Federal would acquire Klamath Falls-based South Valley Bancorp Inc. and its 24 branches.
The purchase would make it Oregon’s seventh-largest bank by deposits. Currently, Washington Federal is the state’s 9th largest institution by deposit market share. Klamath Falls-based South Valley ranked No. 13. After the merger, it would have 190 locations in eight states, $14.4 billion in assets and $9.6 billion in deposits.
The proposed deal would give Seattle-based Washington Federal, a thrift specializing in home mortgages and certificates of deposits, a substantially greater presence in southern Oregon and Bend. After the deal closes, it will have about $2.1 billion of deposits in Oregon, or 3.61 percent of the market, based on June 2011 figures.
South Valley Bank & Trust has 24 branches, mostly around Medford, Klamath Falls and Bend. It has $868 million in assets and $771 million in deposits, making it the state’s 13th largest Federal Deposit Insurance Corp.-insured institution.
The Washington Federal deal was announced after the end of trading Wednesday on the Nasdaq Stock Market, where the Seattle bank’s stock closed at $16.54, down 26 cents.
The agreement includes $33.7 million in stock and up to $39 million in cash based on the performance of a pool of South Valley assets. Regulators and South Valley shareholders must approve the deal, but Washington Federal expects it to close during the third quarter. D.A. Davidson & Co. advised South Valley on the merger.
Under the deal, Washington Federal will give South Valley shareholders $33.7 million worth of its stock. That’s well below South Valley’s book value of $66.4 million as of December 31, 2011.
But South Valley could earn up to $20 million in additional cash payments if balances on a $39 million pool of South Valley loans are collected in full over the next five years.
“These loans aren’t due,” said Washington Federal chief financial officer Brent Beardall. “They’re performing loans. There’s just uncertainty when they’ll be collected or if they’ll be collected.”
South Valley shareholders would receive even more cash for any loans paid off before the sale is complete, Beardall said.
South Valley, which largely held businesses and commercial real estate loans, had sought to hold an Initial Public Offering of stock last year. But it scrapped those plans in November, citing market conditions, chief executive William Castle said.
“It’s fairly well known, at least at that time, that there hadn’t been any IPOs, particularly in the banking space,” Castle said. “It just became problematic so we took it off the table.”
“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, “Washington Federal CEO Roy M. Whitehead said in a news release.
