Seattle-based Washington Federal Inc. agreed to acquire Santa Rosa, Calif.-based Luther Burbank Corp. and its wholly owned subsidiary, Luther Burbank Savings, in an all-stock transaction valued at approximately $654 million, based on the Nov. 11 closing price of Washington Federal's common stock.
Upon closing of the transaction, Luther Burbank shareholders will be entitled to receive 0.3353 share of Washington Federal common stock for each share of Luther Burbank common stock owned, according to a news release.
Luther Burbank operates 10 full-service branches in California, one full-service branch in Washington, six loan production offices in California, and one loan production office in Oregon. Luther Burbank had total assets worth $7.9 billion, total loans of $6.9 billion, and total deposits of $5.8 billion, as of Sept. 30, according to the release.
Washington Federal has 201 branches in eight western states. Washington Federal had total assets of $20.8 billion, total loans of $16.3 billion and total deposits of $16.0 billion, as of Sept. 30, according to the release. Washington Federal conducts its business primarily through its wholly owned subsidiary, Washington Federal Bank.
Upon merger completion, the combined entity will have approximately $29 billion in total assets, $23 billion in total loans and $22 billion in total deposits across 210 locations in Washington, California, Oregon, Idaho, Utah, Nevada, Arizona, Texas and New Mexico, operated through its community bank subsidiary, and approximately 2,400 full-time employees.
Based on S&P Global Market Intelligence data, with the completion of the deal, Washington Federal Inc. will enter California with 13 branches to be ranked No. 16 with a 0.26% share of approximately $2.18 trillion in total market deposits and will expand in Washington by one branch to be ranked ninth with a 3.1% share of approximately $228.92 billion in total market deposits.
At the announcement, S&P Global Market Intelligence calculates the deal value to be 96.55% of common equity, 97.02% of tangible common equity, 11.28% of deposits, 8.25% of assets and 7.31x earnings.
S&P Global Market Intelligence valuations for bank and thrift targets in the West region between Nov. 13, 2021, and Nov. 13, 2022, averaged 175.61% of book and 181.93% of tangible book and had a median of 17.26x last-12-months earnings, on an aggregate basis, and averaged 163.79% of book and 164.29% of tangible book and had a median of 16.76x LTM earnings, on a per-share basis.
The transaction does not negatively impact Washington Federal's tangible book value and is accretive to its forward-estimated earnings and capital, said Washington Federal President and CEO Brent Beardall in the release. As part of the transaction, Washington Federal Bank will commit $1 million to support communities in Luther Burbank's California footprint, Beardall added.
The transaction is expected to close as early as the second quarter of 2023.
Luther Burbank has to pay a termination fee of $26.17 million to Washington Federal Bank if the deal is terminated under certain circumstances set forth in the merger agreement, according to a Form 8-K filing.
Keefe Bruyette & Woods was financial adviser and Davis Wright Tremaine LLP was legal counsel to Washington Federal. Piper Sandler & Co. was financial adviser and Holland & Knight LLP was legal counsel to Luther Burbank.
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