Business Combinations and Asset Acquisitions

9 Months Ended

Sep. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Business Combination Disclosure [Text Block]

Bank of Commerce

On October 1, 2021, the Company completed its acquisition of Bank of Commerce and its wholly-owned banking subsidiary Merchants Bank of Commerce. The Company acquired 100% of the equity interests of Bank of Commerce.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of the October 1, 2021 acquisition date. The application of the acquisition method of accounting resulted in the recognition of goodwill of $57.3 million and a CDI of $15.9 million. The goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The Company paid this premium for a number of reasons, including to expand the Company’s current footprint and to enter the California market and the synergies and economies of scale expected from the acquisition. The goodwill is not deductible for income tax purposes.

The table below summarizes the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed:

	October 1, 2021
	(in thousands)
Merger consideration			$	256,257
Identifiable net assets acquired, at fair value
Assets acquired
Cash and cash equivalents	$	155,180
Investment securities	654,480
FHLB stock	7,463
Loans, net allowance for credit loss	1,084,984
Interest receivable	5,237
Premises and equipment	17,658
Core deposit intangible	15,932
Other assets	41,963
Total assets acquired			1,982,897
Liabilities assumed
Deposits	(1,737,584)
Subordinated debentures	(10,000)
Junior subordinated debentures	(10,310)
Other liabilities	(26,076)
Total liabilities assumed			(1,783,970)
Total fair value of identifiable net assets			198,927
Goodwill			$	57,330

See Note 8, “Goodwill and Other Intangible Assets,” for further discussion of the accounting for goodwill and other intangible assets.

Of the $1.08 billion net loans acquired, $40.3 million exhibited credit deterioration on the date of purchase. The following table provides a summary of these PCD loans at acquisition:

	October 1, 2021
	(in thousands)
Par value of PCD loans acquired	$	43,419
PCD ACL at acquisition	(2,616)
Non-credit discount on PCD loans	(525)
Purchase price of PCD loans	$	40,278

The operating results of the Company reported herein include the operating results produced by the acquired assets and assumed liabilities for the period of January 1, 2022 to September 30, 2022. Disclosure of the amount of Bank of Commerce’s revenue and net income (excluding integration costs) included in Columbia’s Consolidated Statements of Income is impracticable due to the integration of the operations and accounting for this acquisition.

For illustrative purposes only, the following table presents certain unaudited pro forma information for the nine months ended September 30, 2021. This unaudited, estimated pro forma financial information was calculated as if Bank of Commerce had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of Bank of Commerce with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value. Additionally, the pro forma amounts below do not reflect Columbia’s expectations as of the date of the pro forma information of further operating cost savings and other business synergies expected to be achieved, including revenue growth as a result of the acquisition. As a result, actual amounts would have differed from the unaudited pro forma information presented.

	Unaudited Pro Forma for the
	Nine Months Ended September 30,
	2021
	(in thousands, except per share amounts)
Total revenues (net interest income plus noninterest income)	$	495,378
Net income	$	173,355
Earnings per share - basic	$	2.23
Earnings per share - diluted	$	2.23

The following table shows the impact of the merger-related expenses related to the acquisition of Bank of Commerce for the periods indicated to the various components of noninterest expense:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Noninterest Expense
Compensation and employee benefits	$	205	$	—	$	1,144	$	—
Occupancy	8		—		928		—
Data processing and software	219		1		1,640		1
Legal and professional fees	133		2,153		378		2,663
Advertising and promotion	—		—		18		—
Other	3		38		796		38
Total impact of merger-related expenses to noninterest expense	$	568	$	2,192	$	4,904	$	2,702

In addition, related to the pending transaction with Umpqua, the Company recognized $2.7 million and $9.3 million of merger-related expenses for the three and nine months ended September 30, 2022. While full regulatory approval is still pending, integration planning efforts continue to move forward.