Home Federal ditches Banner Bank offer for Bank of the Cascades

zkyle@idahostatesman.comOctober 24, 2013 

Five weeks ago, Bank of the Cascades President and CEO Terry Zink planned for his Bend, Ore., banking company to continue its steady climb out of the recession. Four weeks ago, Zink pounced on a chance to double the bank's size in one step.

When Banner Bank in Walla Walla, Wash., announced Sept. 24 that it would buy Home Federal Bank for $197 million, Zink studied the purchase agreement. He had eyed Home Federal as a possible merger partner for years. The banks were similar in assets ($1.3 billion for Bank of the Cascades, just under $1 billion for Home Federal) and had similar footprints in Oregon and Idaho.

The map below shows current Home Federal (H) and Bank of the Cascades (C) locations.

Zink searched the agreement for a “go shopping” clause. Such clauses typically allow a seller to accept additional bids for 30 days before a sale is final. Zink found one. He had his staff run the numbers, found them favorable and submitted a bid of $265.7 million.

"If there was a bank Cascade really coveted, it would be Home," Zink told the Idaho Statesman. "It's a deal that would make sense in so many different ways. That's why we moved quickly."

Zink wasn't the only post-deal suitor. He said Home received other offers, but none as high as his — a 35 percent premium over Banner's offer. Home and Cascade announced the new deal Wednesday.

And the sale is final this time. The 30-day “go shop” period is over and can’t be reintroduced into the new deal, Zink said.

Bank of the Cascades is headquartered in Bend, Ore., has 392 employees and 28 branches in Idaho and Oregon. Home Federal has 304 employees and 25 branches.

Zink said he hoped to retain most of the nearly 700 workers employed by the two banks, but consolidation may be on the way.

“If you look at branches where there’s a Home branch and a Cascade branch across street, you could make argument that it probably won’t continue,” Zink said

Cascade’s swoop has the Idaho banking community aflutter, said Gavin Gee, director of the Idaho Department of Finance.

“This is very unusual, especially in Idaho,” Gee said. “Acquiring Home Federal is a real plum. It’s very well-capitalized. It’s very well-managed.”

Home Federal President and CEO Len Williams said he didn’t plan to use the Banner agreement as a carrot to solicit higher offers. The “go-shop” clause was placed in the deal to ensure he and the Home Federal board of directors performed their fiduciary duty to ensure bank shareholders were best served, he said.

Under the Banner deal, Home shareholders were to receive $87.6 million in cash and 2.9 million shares of Banner stock. Under the Cascades deal, they’ll instead receive $120.8 million in cash and 24.3 million shares of Cascades stock. The Home Federal stock rose $2.49 Thursday, closing at $15.30.

“Good, old American capitalism,” Williams told the Statesman.

Banner passed on a chance to match the Bank of the Cascades bid, Zink said. Home paid Banner a $3 million termination fee.

“We had one bite at the apple,” Zink said. “We took the position that we can’t go over this (offer), but this is a franchise we value, that we want to buy, that we have one shot at.”

Banner executives did not return a call for comment.

Zink said the purchase makes more sense for his bank than for Banner. Doubling in size will allow the  combined franchise, which will fly under the Bank of the Cascades flag, to streamline check processing, advertising, human resources and technology, he said.

The merger will especially improve the franchise’s efficiency in regulatory compliance. Zink thinks his bank has increased staffing in its compliance department 25 percent over the last five years to keep up with regulations, including a still-growing list of rules under the Dodd-Frank financial-reform law.

“Independent of each other, we both make a small profit,” Zink said. “But can almost quadruple what can do as a combined organization, because you get that economy of scale you just didn’t have before.”

 

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