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From Banking and Finance Law Daily, September 8, 2015

Fed approves acquisition, merger of Washington banks

By Lisa M. Goolik, J.D.

The Federal Reserve Board has approved the application submitted by Banner Corporation and its subsidiary, Elements Merger Sub, LLC (Merger Sub), both of Walla Walla, Wash., to acquire Starbuck Bancshares, Inc., of Seattle, Wash., and its subsidiary, AmericanWest Bank of Spokane, Wash. Although the acquisition warranted special scrutiny in the Walla Walla and Sunnyside, Wash., banking markets, the Fed concluded that the acquisition would not have a significantly adverse effect on competition. After the acquisition, Starbuck will be merged into Elements Merger Sub, and AmericanWest Bank will be merged into Banner’s wholly owned subsidiary, Banner Bank, also of Walla Walla. Elements Merger Sub and Banner Bank will be the surviving entities.

After the transaction, Banner Corporation will become the 124th largest depository organization in the United States, with consolidated assets of approximately $9.8 billion, which represent less than 1 percent of the total amount of assets of insured depository institutions in the United States. Banner Corporation would become the eighth largest depository organization in Washington, the 15th largest insured depository institution in Idaho, and the 10th largest insured depository institution in Oregon, representing less than 3.5 percent of the total amount of deposits of insured depository institutions in those states.

Detailed review. Section 3 of the Bank Holding Company Act prohibits the Fed from approving an application if the proposal would result in a monopoly or would be in furtherance of an attempt to monopolize the business of banking in any relevant market. The Act also prohibits the Fed from approving a proposal that would substantially lessen competition or tend to create a monopoly in any relevant market.

Banner Bank and AmericanWest Bank compete directly in the Idaho-Washington banking market of Lewiston, the Oregon banking market of Roseburg, the Washington-Idaho banking market of Spokane, the Washington-Oregon banking market of Walla Walla, and the Washington banking markets of Richland-Kennewick-Pasco, Seattle, Sunnyside, and Yakima. While the Fed determined that consummation of the proposal would be consistent with Fed precedent and within the thresholds in the Department of Justice Bank Merger Guidelines in those markets, the structural effects of the proposal in the Sunnyside and Walla Walla banking markets warranted a detailed review.

In the Sunnyside market, Banner and Starbuck are the fourth and second largest depository organizations, respectively. The combined entity would control approximately $143.5 million in deposits, representing almost 29 percent of market deposits. However, the Fed concluded the DOJ index and market share “overstates the potential competitive effects of the proposal in the market.” The presence of a thrift institution and two credit unions results in a banking market that is only moderately concentrated, both before and after the transaction, the Fed noted. In addition, 10 depository organizations would continue to operate in the Sunnyside banking market, including one insured depository institution with a market share of more than 25 percent.

In the Walla Walla market, Banner and Starbuck are the second and third largest depository organizations, respectively, and the combined entity would be the largest depository organization in the Walla Walla banking market, controlling approximately 40 percent of market deposits. To mitigate the potentially adverse competitive effects of the proposal in the Walla Walla banking market, Banner agreed to divest one branch, accounting for a total of approximately $27 million in deposits, to a competitively suitable institution.

The Fed also noted that the DOJ advised the Fed that consummation of the proposal would not likely have a significantly adverse effect on competition in any relevant banking market.

Needs of the community. The Act also requires that the Fed consider the convenience and needs of the communities to be served and take into account the records of the relevant depository institutions under the Community Reinvestment Act. Banner Bank received an overall “satisfactory” rating by the Federal Deposit Insurance Corporation in March 2013. Examiners found also that Banner Bank’s overall level of lending reflected good responsiveness to assessment area credit needs.

AmericanWest Bank was assigned an overall “satisfactory” rating at its most recent CRA performance evaluation by the FDIC in September 2012. The Fed noted also that AmericanWest Bank exhibited a good record of serving the credit needs of the most economically disadvantaged geographies of its assessment areas, low-income individuals, and very small businesses and farms, consistent with safe and sound banking practices.

Financial and managerial resources. The Fed also considered the financial and managerial resources and future prospects of the banks involved and concluded the considerations were consistent with approval. According to the Fed, Banner and Banner Bank are both well capitalized and appear to have adequate resources to absorb the costs of the proposal and to complete the integration of the banks’ operations. The Fed also concluded that Banner, Starbuck, and their insured depository institution subsidiaries are each considered to be well managed.

Financial stability. The Fed also considered the risk to the stability of the banking or financial system. However, the Fed generally presumes that a merger that involves an acquisition of less than $2 billion in assets, or results in a firm with less than $25 billion in total consolidated assets, will not pose significant risks to the financial stability. The Fed concluded that after the merger, Banner would have approximately $9.8 billion in consolidated assets and would not be likely to pose systemic risks.

Companies: AmericanWest Bank; Banner Bank; Banner Corporation; Elements Merger Sub, LLC; Starbuck Bancshares, Inc.

MainStory: TopStory BankHolding BankingOperations FederalReserveSystem FinancialStability IdahoNews MergersAcquisitions WashingtonNews

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