Aggressive interest rate hikes by the Federal Reserve led Bancorp 34 in Scottsdale, Ariz., and CBOA Financial in Tucson, Ariz., to temporarily suspend merger discussions.
The $574.9 million-asset Bancorp 34 would eventually agree in April to buy the $372.2 million-asset CBOA for $28 million.
The banks’ leaders first met in November 2020 and a nondisclosure agreement was signed a month later, according to a regulatory filing tied to the pending transaction.
The Fed’s rate hikes shifted market sentiment, and the banks decided in mid-2022 to pause their conversations. Bancorp 34 decided to raise capital, while CBOA considered doing the same.
CBOA briefly discussed selling stock to a private investor but determined that selling to Bancorp 34 would be a better route. Bancorp 34 raised capital, including a $14 million private placement in December.
Bancorp 34 and CBOA negotiated a nonbinding letter of intent last fall. Financial metrics were refined over that time to reflect higher interest rates and “changing economic conditions,” the filing said.
The non-binding letter of intent was signed on Jan. 20. The initial draft of the merger agreement was send to CBOA on March 8.
Bancorp 34’s directors unanimously approved the deal on April 26, while the CBOA board unanimously endorsed it a day later. The deal is expected to close in the fourth quarter.
“This is an exciting combination that will accelerate both companies’ strategic goals by enhancing our ability to serve our customers,” Jim Crotty, Bancorp 34’s CEO, said in a press release announcing the acquisition.
“Higher lending limits will allow us to tap new opportunities and grow stronger relationships with our existing customers, while increased scale will allow us to more efficiently meet the needs of all our stakeholders,” he added.
Bancorp 34 expects the deal to be 50% accretive to its earnings per share. It should take about three years to earn back an estimated 14% dilution to Bancorp 34’s tangible book value.
The eight-member board will include five directors from Bancorp 34 and three from CBOA. Chris Webster, CBOA’s CEO, will become president and join the board.