Attached files
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8-K/A - 8-K/A - COLUMBIA BANKING SYSTEM, INC. | form8-kamergerclosingannou.htm |
EX-99.1 - WEST COAST BANCORP HISTORICAL FINANCIAL STATEMENTS - COLUMBIA BANKING SYSTEM, INC. | exhibit991westcoasthistori.htm |
EX-23.1 - CONSENT - COLUMBIA BANKING SYSTEM, INC. | exhibit231consentofindepen.htm |
EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information and explanatory notes show the impact on the historical financial positions and results of operations of Columbia Banking System, Inc. ("Columbia") and West Coast Bancorp ("West Coast") and have been prepared to illustrate the effects of the merger involving Columbia and West Coast under the acquisition method of accounting with Columbia treated as the acquirer. Under the acquisition method of accounting, the assets and liabilities of West Coast, as of the effective date of the merger, will be recorded by Columbia at their respective fair values and the excess of the merger consideration over the fair value of West Coast’s net assets will be allocated to goodwill. The unaudited pro forma condensed combined balance sheet as of December 31, 2012 is presented as if the merger with West Coast had occurred on December 31, 2012. The unaudited pro forma condensed combined income statement for the year ended December 31, 2012 is presented as if the merger had occurred on January 1, 2012. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the merger and, with respect to the income statements only, expected to have a continuing impact on consolidated results of operations.
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the period presented. The adjustments included in these unaudited pro forma condensed combined financial statements are preliminary and may be revised. The unaudited pro forma condensed combined financial information also does not consider any potential impacts of potential revenue enhancements, anticipated cost savings and expense efficiencies, or asset dispositions, among other factors. For the historical income statements of West Coast, amounts related to other real estate owned, which were historically reported in noninterest income by West Coast, have been reclassified to noninterest expense to conform to the presentation in Columbia's financial statements.
In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial information, the pro forma allocation of purchase price reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed. Adjustments may include, but not be limited to, changes in (i) West Coast’s balance sheet through the effective time of the merger; (ii) total merger related expenses if consummation and/or implementation costs vary from currently estimated amounts; and (iii) the underlying values of assets and liabilities if market conditions differ from current assumptions.
The unaudited pro forma condensed combined financial statements are provided for informational purposes only. The unaudited pro forma condensed combined financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma condensed combined financial statements and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma condensed combined financial statements should be read together with:
• | the accompanying notes to the unaudited pro forma condensed combined financial statements; |
• | Columbia's separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2012, included in Columbia's Annual Report on Form 10-K for the year ended December 31, 2012; |
• | West Coast's separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2012, included in West Coast's Annual Report on Form 10-K for the year ended December 31, 2012; |
• | the amended Form S-4 related to the merger of Columbia and West Coast. |
1
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 2012
Columbia Historical | West Coast Historical | Pro Forma Merger Adjustments | Notes | Pro Forma Combined | ||||||||||||||
ASSETS | (in thousands) | |||||||||||||||||
Cash and cash equivalents | $ | 513,926 | $ | 137,611 | $ | (264,610 | ) | A | $ | 386,927 | ||||||||
Securities available for sale at fair value | 1,001,665 | 772,109 | — | 1,773,774 | ||||||||||||||
Federal Home Loan Bank stock at cost | 21,819 | 11,932 | — | 33,751 | ||||||||||||||
Loans held for sale | 2,563 | — | — | 2,563 | ||||||||||||||
Loans, excluding covered loans, net of unearned income | 2,525,710 | 1,494,929 | (96,271 | ) | B | 3,924,368 | ||||||||||||
Less: allowance for loan and lease losses | 52,244 | 29,448 | (29,448 | ) | C | 52,244 | ||||||||||||
Loans, excluding covered loans, net | 2,473,466 | 1,465,481 | (66,823 | ) | 3,872,124 | |||||||||||||
Covered loans, net of allowance for loan losses | 391,337 | — | — | 391,337 | ||||||||||||||
Total loans, net | 2,864,803 | 1,465,481 | (66,823 | ) | 4,263,461 | |||||||||||||
FDIC loss-sharing asset | 96,354 | — | — | 96,354 | ||||||||||||||
Premises and equipment, net | 118,708 | 21,948 | 14,578 | D | 155,234 | |||||||||||||
Other real estate owned | 26,987 | 16,112 | (356 | ) | E | 42,743 | ||||||||||||
Goodwill | 115,554 | — | 232,343 | F | 347,897 | |||||||||||||
Core deposit intangible, net | 15,721 | — | 15,300 | G | 31,021 | |||||||||||||
Other assets | 128,235 | 62,987 | 28,795 | H | 220,017 | |||||||||||||
Total assets | $ | 4,906,335 | $ | 2,488,180 | $ | (40,773 | ) | $ | 7,353,742 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||
Deposits | $ | 4,042,085 | $ | 1,936,000 | $ | 650 | I | $ | 5,978,735 | |||||||||
Federal Home Loan Bank advances | 6,644 | 127,900 | 980 | J | 135,524 | |||||||||||||
Junior subordinated debentures | — | 51,000 | — | 51,000 | ||||||||||||||
Other liabilities | 93,598 | 34,060 | 20,636 | K | 148,294 | |||||||||||||
Total liabilities | 4,142,327 | 2,148,960 | 22,266 | 6,313,553 | ||||||||||||||
Shareholders’ equity: | ||||||||||||||||||
Preferred stock | — | 21,124 | (18,907 | ) | L | 2,217 | ||||||||||||
Common stock | 581,471 | 232,202 | 41,762 | M | 855,435 | |||||||||||||
Retained earnings | 162,388 | 76,406 | (76,406 | ) | N | 162,388 | ||||||||||||
Accumulated other comprehensive income | 20,149 | 9,488 | (9,488 | ) | O | 20,149 | ||||||||||||
Total shareholders’ equity | 764,008 | 339,220 | (63,039 | ) | 1,040,189 | |||||||||||||
Total liabilities and shareholders’ equity | $ | 4,906,335 | $ | 2,488,180 | $ | (40,773 | ) | $ | 7,353,742 |
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.
2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE
YEAR ENDED DECEMBER 31, 2012
The unaudited pro forma condensed combined statement of income for the year ended December 31, 2012 presents the consolidated financial results as if the merger had occurred on January 1, 2012.
Columbia Historical | West Coast Historical | Pro Forma Merger Adjustments | Notes | Pro Forma Combined | ||||||||||||||
Interest Income | (in thousands except per share amounts) | |||||||||||||||||
Loans | $ | 219,433 | $ | 75,139 | 16,045 | P | $ | 310,617 | ||||||||||
Taxable securities | 18,276 | 13,949 | — | 32,225 | ||||||||||||||
Tax-exempt securities | 9,941 | 2,112 | — | 12,053 | ||||||||||||||
Federal funds sold and deposits in banks | 854 | 124 | — | 978 | ||||||||||||||
Total interest income | 248,504 | 91,324 | 16,045 | 355,873 | ||||||||||||||
Interest Expense | ||||||||||||||||||
Deposits | 5,887 | 1,739 | (347 | ) | Q | 7,279 | ||||||||||||
Federal Home Loan Bank advances | 2,608 | 1,351 | (560 | ) | R | 3,399 | ||||||||||||
Prepayment charge on Federal Home Loan Bank advances | 603 | — | — | 603 | ||||||||||||||
Junior subordinated debentures | — | 1,206 | — | 1,206 | ||||||||||||||
Other borrowings | 479 | — | — | 479 | ||||||||||||||
Total interest expense | 9,577 | 4,296 | (907 | ) | 12,966 | |||||||||||||
Net Interest Income | 238,927 | 87,028 | 16,952 | 342,907 | ||||||||||||||
Provision (recapture) for loan and lease losses | 13,475 | (983 | ) | — | 12,492 | |||||||||||||
Provision for losses on covered loans | 25,892 | — | — | 25,892 | ||||||||||||||
Net interest income after provision for loan and lease losses | 199,560 | 88,011 | 16,952 | 304,523 | ||||||||||||||
Noninterest Income | ||||||||||||||||||
Service charges and other fees | 29,998 | 16,516 | — | 46,514 | ||||||||||||||
Merchant services fees | 8,154 | 12,246 | — | 20,400 | ||||||||||||||
Investment securities gains, net | 3,733 | 326 | — | 4,059 | ||||||||||||||
Change in FDIC loss-sharing asset | (24,467 | ) | — | — | (24,467 | ) | ||||||||||||
Other | 9,640 | 5,552 | — | 15,192 | ||||||||||||||
Total noninterest income | 27,058 | 34,640 | — | 61,698 | ||||||||||||||
Noninterest Expense | ||||||||||||||||||
Compensation and employee benefits | 85,434 | 45,743 | — | 131,177 | ||||||||||||||
Occupancy | 20,031 | 14,372 | 170 | S | 34,573 | |||||||||||||
Merchant processing | 3,612 | 4,401 | — | 8,013 | ||||||||||||||
Advertising and promotion | 3,650 | 1,585 | — | 5,235 | ||||||||||||||
Data processing and communications | 9,714 | 1,604 | — | 11,318 | ||||||||||||||
Legal and professional fees | 8,915 | 3,416 | (1,760 | ) | T | 10,571 | ||||||||||||
Net cost (benefit) of operation of other real estate owned | (1,969 | ) | 2,813 | — | 844 | |||||||||||||
Amortization of intangibles | 4,445 | — | 2,774 | U | 7,219 | |||||||||||||
Merger related expense | — | 1,772 | (1,772 | ) | V | — | ||||||||||||
Other | 29,081 | 11,192 | (20 | ) | W | 40,253 | ||||||||||||
Total noninterest expense | 162,913 | 86,898 | (608 | ) | 249,203 | |||||||||||||
Income before income taxes | 63,705 | 35,753 | 17,560 | 117,018 | ||||||||||||||
Income tax provision | 17,562 | 12,247 | 6,146 | X | 35,955 | |||||||||||||
Net Income | $ | 46,143 | $ | 23,506 | $ | 11,414 | $ | 81,063 | ||||||||||
Per Common Share | ||||||||||||||||||
Earnings basic | $ | 1.16 | $ | 1.15 | $ | 1.56 | ||||||||||||
Earnings diluted | $ | 1.16 | $ | 1.08 | $ | 1.56 | ||||||||||||
Dividends declared per common share | $ | 0.98 | $ | 0.10 | $ | 0.98 | ||||||||||||
Weighted average number of common shares outstanding | 39,260 | 19,086 | (6,276 | ) | Y | 52,070 | ||||||||||||
Weighted average number of diluted common shares outstanding | 39,263 | 20,286 | (7,476 | ) | Z | 52,073 |
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.
3
Note 1—Basis of Presentation
The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting giving effect to the merger involving Columbia and West Coast. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position had the merger been consummated at December 31, 2012 or the results of operations had the merger been consummated at January 1, 2012, nor is it necessarily indicative of the results of operation in future periods or the future financial position of the combined entities. For the historical income statements of West Coast, amounts related to other real estate owned, which were historically reported in noninterest income by West Coast, have been reclassified to noninterest expense to conform to the presentation in Columbia’s financial statements. The merger was completed on April 1, 2013. The merger consideration included the issuance of approximately $276.2 million in equity consideration as well as cash consideration of approximately $264.6 million.
Under the acquisition method of accounting, the assets and liabilities of West Coast will be recorded at the respective fair values on the merger date. The fair value on the merger date represents management’s best estimates based on available information and facts and circumstances in existence on the merger date. The pro forma allocation of purchase price reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed. Adjustments may include, but not be limited to, changes in (i) West Coast’s balance sheet through the effective time of the merger; (ii) total merger related expenses if consummation and/or implementation costs vary from currently estimated amounts; and (iii) the underlying values of assets and liabilities if market conditions differ from current assumptions.
The accounting policies of both Columbia and West Coast are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or financial statement reclassification may be determined.
Note 2—Estimated Merger and Integration Costs
In connection with the merger, the plan to integrate Columbia’s and West Coast’s operations is still being developed. Over the next several months, the specific details of these plans will continue to be refined. Columbia and West Coast are currently in the process of assessing the two companies’ personnel, benefit plans, premises, equipment, computer systems, supply chain methodologies, and service contracts to determine where they may take advantage of redundancies or where it will be beneficial or necessary to convert to one system. Certain decisions arising from these assessments may involve involuntary termination of West Coast’s employees, vacating West Coast’s leased premises, changing information systems, canceling contracts between West Coast and certain service providers and selling or otherwise disposing of certain premises, furniture and equipment owned by West Coast. Additionally, as part of our formulation of the integration plan, certain actions regarding existing Columbia information systems, premises, equipment, benefit plans, supply chain methodologies, supplier contracts, and involuntary termination of personnel may be taken. Columbia expects to incur merger-related expenses including system conversion costs, employee retention and severance agreements, communications to customers, and others. To the extent there are costs associated with these actions, the costs will be recorded based on the nature and timing of these integration actions. Most acquisition and restructuring costs are recognized separately from a business combination and generally will be expensed as incurred. Our current estimate for merger related costs is approximately $20 million and expect they will be incurred primarily in 2013.
Note 3—Estimated Annual Cost Savings
Columbia expects to realize approximately $20 million in annual pre-tax cost savings following the merger, which management expects to be phased-in over a two-year period, but there is no assurance that the anticipated cost savings will be realized on the anticipated time schedule or at all. These cost savings are not reflected in the presented pro forma financial information.
4
Note 4—Pro Forma Adjustments
The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All taxable adjustments were calculated using a 35% tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change.
Notes to Pro Forma Balance Sheet Adjustments
(dollars in thousands)
A. Adjustment to cash and cash equivalents
To reflect cash used to purchase West Coast. | $ | (264,610 | ) |
B. Adjustment to loans, excluding covered loans, net of unearned income
To reflect estimated fair value at merger date. The adjustment to loans reflects an estimate of fair value based upon current interest rates for similar loans and expected losses in the acquired loan portfolio. During Columbia's due diligence on West Coast, Columbia reviewed loan information across collateral types and geographic distributions. Columbia applied traditional examination methodologies to arrive at the fair value adjustment. | $ | (96,271 | ) |
C. Adjustment to allowance for loan and lease losses
To remove West Coast allowance at merger date as the credit risk is contemplated in the fair value adjustment in adjustment B above. | $ | (29,448 | ) |
D. Adjustment to premises and equipment
To reflect estimated fair value of West Coast premises and equipment at merger date, based on third-party estimates. The estimated useful life of the premises and equipment ranges from 5-39 years. | $ | 14,578 |
E. Adjustment to other real estate owned
To reflect estimated fair value of West Coast other real estated owned at merger date, based on third-party estimates. | $ | (356 | ) |
F. Adjustment to goodwill
To reflect the goodwill associated with the West Coast merger. | $ | 232,343 |
G. Adjustment to core deposit intangible, net
To record the estimated fair value of acquired identifiable intangible assets utilizing an income approach based on the net present value of the difference between the cost of the core deposits and the cost of alternative funds. The acquired core deposit intangible will be amortized over 10 years using a sum-of-the-years-digits method. | $ | 15,300 |
H. Adjustment to other assets
To reflect favorable lease contracts. | $ | 1,310 | ||||
To reflect deferred tax asset created in the merger. | 27,485 | |||||
$ | 28,795 | |||||
Deferred tax asset is calculated as follows: | ||||||
Adjustment to loans | $ | 96,271 | ||||
Adjustment to allowance for loan and lease losses | (29,448 | ) | ||||
Adjustment to other real estate owned | 356 | |||||
Adjustment to FHLB advances | 980 | |||||
Adjustment to deposits | 650 | |||||
Adjustment to other liabilities for mortgage repurchase obligation | 5,700 | |||||
Adjustment to other liabilities for environmental remediation liability | 350 | |||||
Adjustment to other liabilities for unfavorable lease contracts | 3,670 | |||||
Subtotal for fair value adjustments | 78,529 | |||||
Calculated deferred tax asset at Columbia's estimated statutory rate of 35% | $ | 27,485 |
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I. Adjustment to deposits
To reflect estimated fair value at merger date based on current market rates for similar products. This adjustment will be accreted into income over the estimated lives of the deposits, which is less than one year. | $ | 650 |
J. Adjustment to Federal Home Loan Bank advances
To reflect estimated fair value at merger date based on current market rates for similar products. This adjustment will be accreted into income over the lives of the advances. | $ | 980 |
K. Adjustments to other liabilities
To reflect unfavorable lease contracts. | $ | 3,670 | ||||
To reflect estimated mortgage repurchase obligation | 5,700 | |||||
To reflect estimated environmental liability | 350 | |||||
To reflect deferred tax liability created in the merger. | 10,916 | |||||
$ | 20,636 | |||||
The deferred tax liability is calculated as follows: | ||||||
Adjustment to premises and equipment | $ | 14,578 | ||||
Adjustment to core deposit intangible, net | 15,300 | |||||
Adjustment to other assets to reflect favorable lease contracts | 1,310 | |||||
Subtotal for fair value adjustments | 31,188 | |||||
Calculated deferred tax liability at Columbia's estimated statutory rate of 35% | $ | 10,916 |
L. Adjustment to preferred stock
To eliminate historical West Coast preferred stock. | $ | (21,124 | ) |
To reflect fair value of preferred stock issued by Columbia to West Coast preferred stock shareholders | 2,217 | ||
$ | (18,907 | ) |
M. Adjustments to common stock
To eliminate historical West Coast common stock. | $ | (232,202 | ) |
To reflect the issuance of warrants to West Coast shareholders. | 26,931 | ||
To reflect the issuance of Columbia common stock to West Coast shareholders. | 246,503 | ||
To reflect modification of WCBO stock options | 530 | ||
$ | 41,762 |
N. Adjustment to retained earnings
To eliminate historical West Coast retained earnings. | $ | (76,406 | ) |
O. Adjustment to accumulated other comprehensive income
To eliminate historical West Coast accumulated other comprehensive income. | $ | (9,488 | ) |
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Income Statements
(dollars and shares in thousands)
Material nonrecurring charges which result directly from the merger which will be included in the income of Columbia within 12 months of the closing were not included in the pro forma income statement. The estimated amount of these charges is $16.7 million.
Year Ended December 31, 2012 | |||||||
P. | Adjustment to loan interest income | ||||||
To reflect accretion of loan discount resulting from loan fair value pro forma adjustment based on weighted average remaining life of six years. | $ | 16,045 | |||||
Q. | Adjustment to deposit interest expense | ||||||
To reflect amortization of deposit premium resulting from deposit fair value pro forma adjustment based on remaining life of time deposits. | $ | (347 | ) | ||||
R. | Adjustment to Federal Home Loan Bank advances interest expense | $ | (560 | ) | |||
To reflect amortization of FHLB advance premiums resulting from fair value pro forma adjustment based on weighted average life of FHLB advances being approximately 1.75 years. | |||||||
S. | Adjustments to occupancy | ||||||
To reflect additional depreciation expense resulting from premises and equipment pro forma adjustment based on estimated useful lives ranging from 5 to 39 years. | $ | 509 | |||||
To reflect the net premium amortization and discount accretion of favorable and unfavorable leases based on the remaining term of the leases. | (339 | ) | |||||
$ | 170 | ||||||
T. | Adjustment to legal and professional | ||||||
To remove direct, incremental costs of the merger incurred by Columbia and West Coast. | $ | (1,760 | ) | ||||
U. | Adjustment to amortization of intangibles | ||||||
To reflect amortization of acquired intangible assets based on amortization period of 10 years and using the sum-of-the-years-digits method of amortization. | $ | 2,774 | |||||
V. | Adjustment to merger related expense | ||||||
To remove direct, incremental costs of the merger incurred by Columbia and West Coast. | $ | (1,772 | ) | ||||
W. | Adjustment to other noninterest expense | $ | (20 | ) | |||
To remove direct, incremental costs of the merger incurred by Columbia and West Coast. | |||||||
X. | Adjustment to income tax provision | ||||||
To reflect the income tax effect of pro forma adjustments P-W at Columbia's estimated statutory tax rate of 35%. | $ | 6,146 |
Y. | Adjustments to weighted average number of common shares outstanding | (6,276 | ) | ||||
Adjustment to year ended December 31, 2012 calculated as follows: | |||||||
Removal of West Coast weighted average number of common shares outstanding for the year ended December 31, 2012 | (19,086 | ) | |||||
Columbia shares issued to West Coast shareholders | 12,810 | ||||||
Adjustment to weighted average number of common shares outstanding for the year ended December 31, 2012 | (6,276 | ) | |||||
Z. | Adjustments to weighted average number of diluted common shares outstanding | (7,476 | ) | ||||
Adjustment to year ended December 31, 2012 calculated as follows: | |||||||
Removal of West Coast weighted average number of diluted common shares outstanding for the year ended December 31, 2012 | (20,286 | ) | |||||
Columbia shares issued to West Coast shareholders | 12,810 | ||||||
Adjustment to weighted average number of diluted common shares outstanding for the year ended December 31, 2012 | (7,476 | ) |
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Note 5—Preliminary Purchase Accounting Allocation
The unaudited pro forma condensed combined financial information reflects the transfer of approximately $264.6 million in cash consideration as well as $276.2 million in equity consideration. The equity consideration transferred was measured at fair value on the acquisition date of April 1, 2013. The merger will be accounted for using the acquisition method of accounting; accordingly Columbia’s cost to acquire West Coast will be allocated to the assets (including identifiable intangible assets) and liabilities of West Coast at their respective estimated fair values as of the merger date. Accordingly, the pro forma purchase price was preliminarily allocated to the assets acquired and the liabilities assumed based on their estimated fair values as summarized in the following table.
December 31, 2012 | |||
(in thousands) | |||
Cash paid to West Coast shareholders | $ | 264,610 | |
Columbia common stock exchanged with West Coast common shareholders | 246,503 | ||
Fair value of Columbia Series B Preferred Shares issued | 2,217 | ||
Fair value of modified stock options | 530 | ||
Fair value of Columbia warrants issued | 26,931 | ||
Total purchase price | $ | 540,791 | |
Fair value of assets acquired: | |||
Cash and cash equivalents | $ | 137,611 | |
Securities available for sale at fair value | 772,109 | ||
Federal Home Loan Bank stock at cost | 11,932 | ||
Loans, net of unearned income | 1,398,658 | ||
Premises and equipment | 36,526 | ||
Other real estate owned | 15,756 | ||
Goodwill | 232,343 | ||
Core deposit intangible | 15,300 | ||
Other assets | 91,782 | ||
Total assets acquired | $ | 2,712,017 | |
Fair value of liabilities assumed: | |||
Deposits | $ | 1,936,650 | |
FHLB advances | 128,880 | ||
Junior subordinated debentures | 51,000 | ||
Other liabilities | 54,696 | ||
Total liabilities assumed | 2,171,226 | ||
Fair value of net assets acquired | $ | 540,791 |
8