Sonoma County’s Luther Burbank Savings being sold to Washington Federal in $654 million deal

Santa Rosa-based Luther Burbank and its wholly-owned subsidiary, Luther Burbank Savings, is being acquired by Seattle-based Washington Federal in an all-stock transaction valued at approximately $654 million.

Conducting business mostly as Washington Federal Bank, as of Sept. 30, Washington Federal had total assets of $20.8 billion, total loans of $16.3 billion and total deposits of $16 billion with 201 branches in eight Western states.

California-chartered Luther Burbank Savings reported total assets of $7.9 billion, total loans of $6.9 billion and total deposits of $5.8 billion. It has 10 California branches, a branch in Washington, six loan production offices in California and one loan production office in Oregon.

“This truly is a great opportunity for our shareholders to reinvest in a larger pro forma institution with a shared legacy and long-term perspective on value, customers and community.” said Victor Trione, chairman of the Luther Burbank board.

Upon completion of the merger, the banks stated the financial institution, which will take on the Washington Federal name, will have approximately $29 billion in total assets, $23 billion in total loans and $22 billion in total deposits with over 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.

But the Luther Burbank name may not continue past the acquisition. The institution, which opened in 1983, was named for the American botanist, horticulturist and agricultural science pioneer, who died in Santa Rosa in 1926.

“Luther Burbank branches will become (Washington Federal) Bank branches so that all clients can be served at any of the combined institution’s 200-plus branches throughout the combined nine-state territory,” officials said in a regulatory document announcing the deal.

Beyond that, Washington Federal doesn’t plan drastic, immediate changes.

”Our expectation is that most client-facing Luther Burbank employees, and many of the Luther Burbank team members who directly support these client-facing employees, will continue with the combined institution,” the bank said.

But some “back office administrative support teams” may not stay on. That decision is expected before the end of January 2023.

“It checks all the boxes. It creates scale,” said Brent Beardall, president and CEO of Washington Federal. “It creates a contiguous footprint from Seattle to Austin.

“Our objective is long-term value creation, which only happens if there is a harmony of people, values and culture, which we believe to be the case in this strategic transaction. We want everyone at our respective banks to know how excited we are to grow our team and serve our customers and communities together.”

Beardall said in an investor call that the Sonoma County company approached them about the deal. It was not in the market to acquire a bank, he explained, but Luther presented “an unusual opportunity.”

“They are not small — $8 billion in assets,” he said. “They only have two delinquent loans.”

Beardall noted that Luther Burbank Savings’ portfolio is largely made up of loans on stabilized (low vacancy) multifamily and single-family residential properties. Loan-to-value ratios, which show how much of the purchase price was financed, for the portfolio were in the 55%—60% range.

“So, we feel incredibly well-protected, in terms of their balance sheet,” he said.

And California offered the chance for Washington Federal to “fill a hole,” Beardall told analysts on the call. And the Santa Rosa-based bank’s “efficiency” in amassing $8 billion in assets from less than a dozen branches made the acquisition an opportunity.

Two of Luther Burbank’s board members would join the Seattle firm’s board, increasing that to 12 people, it was revealed during the investor call. Who would occupy those chairs is set to be determined over the next few months.

Because Washington Federal doesn’t currently operate in California, there is little overlap in branch locations that could be closed. But both institutions have offices in Bellevue, Washington.

“(Washington Federal) recently closed one of its downtown Bellevue branch offices and welcomes the opportunity to expand its physical presence via the Luther Burbank location,” Beardall said in the regulatory filing.

The transaction was unanimously approved by the boards of directors of each of Washington Federal and Luther Burbank and is subject to shareholder and regulatory approval and other customary closing conditions. When the deal is done, Luther Burbank shareholders will be entitled to receive 0.3353 shares of Washington Federal common stock for each share of Luther Burbank common stock they own.

The transaction, anticipated to close as early as the second calendar quarter of 2023, will expand Washington Federal’s franchise into California.

Luther Burbank’s stock price at the close of trading Tuesday was $11.93 a share, up 15 cents per share, or 1.3%, from Monday. Washington Federal’s price was $35.73, down 7 cents, or 0.2%.

Washington Federal was assisted in the transaction by Keefe, Bruyette & Woods, A Stifel Company as financial adviser and Davis Wright Tremaine as legal counsel. Luther Burbank was aided by Piper Sandler & Co. as financial adviser and Holland & Knight as legal counsel.