Columbia fast-tracked its first bank deal since 2017

It only took Columbia Banking System in Tacoma, Wash., three months to hammer out its first bank acquisition in more than three years. 

The $17.3 billion-asset company agreed in June to buy the $1.8 billion-asset Bank of Commerce Holdings in Sacramento, Calif., for $266 million. The acquisition will provide Columbia with its first branches in California. 

Before we dive into the background of the deal, here is an overview of the pending acquisition, which is expected to close in the fourth quarter. 

Columbia expects the deal to be 3% accretive to its 2022 earnings per share and 4% accretive the following year. The acquisition should be 0.3% accretive to Columbia’s tangible book value per share.

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 expenses. 

Now, some key disclosures on how the deal came about, based on a recent regulatory filing: 

• Bank of Commerce hired an investment bank on Feb. 16 to advise on a potential sale or merger.

• The Bank of Commerce board on March 16 decided it would explore a combination with a larger financial institution. The company opted to wait until early April so it could confidentially provide first quarter results to interested parties that signed non-disclosure agreements. 

• The board selected six potential merger partners to contact, though it also asked its investment bank to contact “a few selected banks” in advance to arrange introductory meetings with President and CEO Randall Eslick.

• Eslick met with Clint Stein, Columbia’s president and CEO, on April 1. It was an informal meeting “focused on providing an update regarding publicly available information as to the financial condition, general business interests, and operating strategy” of Bank of Commerce.

• On April 13, the investment bank began contacting potential merger partners, including Columbia. Bank of Commerce and Columbia executed a non-disclosure agreement three days later.

• Bank of Commerce would receive three non-binding offers in early May.

• Columbia pitched an all-stock offer that valued Bank of Commerce at $17.85 a share and sought 60 days of exclusivity. The other proposals valued Bank of Commerce at $15.15 a share and $16.17 a share, respectively.

• Bank of Commerce chose to negotiate with Columbia under a 45-day exclusivity clause. A nonbinding indication of interest was signed on May 14. The management teams met on May 25. 

• The initial draft of the merger agreement circulated on June 4. Key items negotiated included certain representations and warranties to be provided by Bank of Commerce, certain restrictive covenants to be applicable to Bank of Commerce between signing and closing and the amount of transaction-related expenses Bank of Commerce could incur without impacting the exchange ratio. 

• Each company’s board unanimously approved the deal on June 23. It was announced the same day.

• Eslick will become president of Columbia’s Merchants Bank of Commerce division under a two-year contract that can be extended by 12 months. He will receive an annual salary of $490,000 and will be eligible for a bonus based on a target opportunity of 20% of his salary. He will also receive a one-time award of 6,000 restricted shares of stock that will fully vest at the end of two years. 

• Eslick will receive a lump-sum payment of roughly $1.9 million within 15 days of the deal’s completion to address his existing change-in-control agreement. 

• Eslick will have a one-year noncompete clause covering counties in which Merchants has a branch or office or has documented plans to establish a branch or office, and a one-year customer non-solicitation condition.