Columbia Banking entering California with $266M deal

Columbia Banking System in Tacoma, Wash., will enter California with its pending purchase of Bank of Commerce Holdings in Sacramento. 

The $17.3 billion-asset Columbia said in a press release Wednesday that it will pay $265.6 million in stock for the $1.8 billion-asset parent of Merchants Bank of Commerce. The deal is expected to close in the fourth quarter. 

Bank of Commerce has 12 branches, $1.1 billion of loans and $1.6 billion of deposits.

Columbia, which was an aggressive acquirer in the wake of the 2008 financial crisis, had not announced a bank acquisition since it agreed to buy Pacific Continental in January 2017 for $649 million. That deal closed in late 2017.

"We have tremendous respect for the Merchants Bank of Commerce franchise and view this as an opportunity to expand with an organization that aligns with our long-standing commitment to clients and community," Clint Stein Columbia's president and CEO, said in the release.

"Northern California shares many similarities with the [Pacific] Northwest in both metropolitan and rural markets, making expansion into this region a natural extension of our existing footprint," Stein added.

Columbia expects the transaction to be 3% accretive to its 2022 earnings with 4% accretive the next year. The deal should be 0.3% accretive to Columbia's tangible book value. 

Merchants Bank of Commerce will retain its brand as a division of Columbia Bank. Randy Eslick, Bank of Commerce's CEO, will lead the division. 

Columbia plans to cut 30% of Bank of Commerce's annual noninterest expenses, or $10.6 million. The company expects to incur $19.1 million of merger-related charges.

Columbia said it plans to pay $500,000 to small businesses throughout northern California as part of its Pass It On Project, an effort launched last year to support companies looking to recover from stay-at-home orders tied to the coronavirus pandemic.

Columbia "has been telegraphing a willingness to enter northern California for the last few years, and this deal looks like a logical route at a very reasonable price," Matthew Clark, an analyst at Piper Sander, wrote in a note to clients.

"The deal looks digestible to us from a size perspective," Clark added. "We also view Bank of Commerce as being complementary from a geographic ... and business model perspective."

Columbia was advised by Keefe, Bruyette & Woods and Sullivan & Cromwell. Bank of Commerce was advised by Raymond James and Miller Nash.