Washington Federal, Inc. WAFD is entering the lucrative and “fast-growing” California market. The company has signed an agreement to acquire Luther Burbank Corporation LBC and its wholly-owned subsidiary, Luther Burbank Savings, for $654 million.
Washington Federal is expected to use the deal as “a platform for growth in attractive California markets.” The company intends to enhance multifamily loan origination capabilities and expand commercial banking activities to Northern and Southern California.
At present, LBC operates in California, Washington and Oregon through 11 full-service branches and seven loan production offices. Upon closure (expected by June 2023-end), the combined entity will have almost $29 billion in assets, $23 billion in total loans and $22 billion in deposits across 212 locations in nine western states.
Simone Lagomarsino, President and CEO of Luther Burbank, said, “We are very pleased to partner with Washington Federal, which we believe will lead to long-term value creation for our shareholders and the delivery of superior financial products and services to our clients and the communities we serve.”
Further, Brent Beardall, President and CEO of Washington Federal, noted, “It checks all the boxes. It creates scale. It creates a contiguous footprint from Seattle to Austin. Unlike so many comparable transactions, this transaction does not negatively affect our tangible book value and is accretive to forward-estimated earnings and capital.”
Accretive to WAFD Earnings
Under the terms of the all-stock deal, Luther Burbank shareholders will receive 0.3353 shares of Washington Federal common stock for each share of LBC common stock they hold. The deal, already approved by the boards of directors of both WAFD and LBC, is still subject to shareholder and regulatory approvals.
Washington Federal expects to incur one-time pre-tax merger-related charges of $37 million. Following the completion of the transaction, cost savings are projected to be 25% of LBC’s 2023 estimated non-interest expenses, with 50% phased in 2023 and 100% thereafter.
The deal is anticipated to be 7.9% accretive to WAFD’s earnings per share in 2024. Further, capital ratios, including leverage ratio and CET 1 ratio, will continue to be at a robust level on a proforma basis at closure.
Washington Federal is focused on its organic growth efforts. The company’s revenues witnessed a CAGR of 6.4% over the last six fiscal years (2017-2022). Also, the company is expected to keep benefiting from higher interest rates.
The above-mentioned deal, announced amid a challenging macroeconomic environment, will likely support its financials going forward. Also, by entering “attractive California markets”, WAFD will be able to bolster its loan and deposit market share.
Over the past year, shares of WAFD have gained 7.1%, while LBC declined 15.8%.
One-year Price Performance
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At present, WAFD sports a Zacks Rank #1 (Strong Buy) and LBC has a Zacks Rank of #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
A stock from the banking space worth considering is BOK Financial Corporation BOKF. The Zacks Consensus Estimate for BOKF’s current year earnings has been revised 5.2% upward over the past 30 days. Over the past year, shares of BOKF have declined 3.1%. Currently, BOK Financial sports a Zacks Rank #1.
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