SEC Company Response from COLUMBIA BANKING SYSTEM, (COLB) — Dec 28, 2012
COLUMBIA BANKING SYSTEM, INC.
Date: Dec. 28, 2012 · CIK: 0000887343 · Accession: 0001193125-12-517921
AI Filing Summary & Sentiment
File numbers found in text: 000-20288, 001-34509, 333-184742
Letter
Division of Corporation Finance United States Securities and Exchange Commission Filed February 24, 2012 Form 10-Q for the Quarter Ended September 30, 2012 Filed November 2, 2012 File No. 001-34509
Dear Ms. McHale:
Enclosed please find Columbia Banking System, Inc.’s (“Columbia”) and West Coast Bancorp’s (“West Coast”) responses to the comments of the staff (the “Staff”) of the Securities and Exchange Commission set forth in your letter of November 29, 2012 (the “Comment Letter”) related to the above-referenced filings. Columbia has also revised its Registration Statement on Form S-4 in response to the Staff’s comments and is filing concurrently with this letter Amendment No. 1 to the Registration Statement (“Amendment No. 1”), which reflects these revisions and clarifies certain other information.
For the convenience of the Staff, each comment from the Comment Letter corresponds to the numbered paragraph in the Comment Letter and is restated in italics prior to the response to such comment. Page references in the text of this letter correspond to pages and captions in Amendment No. 1.
Ms. Kathryn McHale
December 28, 2012
Page
Registration Statement on Form S-4
Cover Page
1. We note that the value of the consideration to be received by West Coast shareholders will vary with the trading price of the Columbia common stock. Please revise to briefly summarize the formula that will be used to calculate the consideration.
Response: The disclosure has been revised as requested. (Cover Page)
Questions and Answers
What will each West Coast Shareholder Receive in the Merger? page 1
2. It appears that Columbia shareholders will be diluted upon the issuance of common stock as a result of the merger. Please revise your disclosure in this section and throughout the proxy statement/prospectus to disclose the amounts by which shareholders will be diluted, in terms of ownership as well as book value, if applicable.
Response: The disclosure has been revised as requested. (page 1)
How does a West Coast shareholder elect the form of consideration he or she prefers to receive? page 2
3. Revise your disclosure in this section and throughout the proxy statement/prospectus to include a placeholder for the exact date of the election deadline. To the extent that you will not be able to include such date when the proxy statement/prospectus is delivered to shareholders, please tell us how you will convey the deadline to shareholders.
Response: The date of the election deadline will not be known when the joint proxy statement/prospectus is delivered to shareholders. Columbia and West Coast will issue a press release announcing the date of the election deadline at least five business days before that deadline. Additionally, Columbia and West Coast will post the date of the election deadline on their respective web sites, also at least five business days before that deadline. The disclosure has been revised accordingly. (pages 2 and 49).
Ms. Kathryn McHale
December 28, 2012
Page
What happens if an election is not made prior to the election deadline? page 3
4. Please revise to disclose what will happen if holders of the Series B Preferred Stock, the Class C Warrants or the Restricted Shares do not make an election prior to the election deadline.
Response: The disclosure has been revised as requested. (page 4)
How do the boards of directors of Columbia and West Coast recommend that I vote? page 4
5. Revise to include a separate discussion of the interests of the directors and officers of Columbia and West Coast with respect to the matters to be acted upon. Refer to Item 5 of Schedule 14A.
Response: With respect to West Coast, the disclosure has been revised as requested. (page 5) With respect to Columbia, we have reviewed the requirements of Item 5 of Schedule 14A and have determined that no director or executive officer of Columbia has a disclosable interest in the matters to be acted upon.
Summary
Recommendation of the Columbia Board of Directors, page 12
6. Please supplementally provide to the staff the board books or other materials, including projections, the boards considered in making their recommendations to shareholders.
Response: Materials have been separately provided to the Staff on a supplemental basis by West Coast and Columbia, respectively, on a confidential basis. In addition, Amendment No. 1 has been revised to include information regarding the financial projection information for each of West Coast and Columbia and considered by the West Coast board as part of the presentation from its financial advisor. (beginning on page 61)
Interests of West Coast Directors and Executive Officers in the Merger, page 13
7. Please revise to provide the specific information with respect to each of the bullets and quantify the compensation amounts that directors and officers will receive in connection with the merger. In addition, revise to disclose that Mr. Robbins and Ms. McKeown have entered into employment agreements with Columbia. Please make corresponding revisions to the discussion of Risk Factors on page 36.
Response: The disclosure has been revised as requested. (pages 13 and 22)
Ms. Kathryn McHale
December 28, 2012
Page
8. We note that one of the directors of West Coast will be recommended to serve on Columbia’s board of directors following the merger. Revise to explain how that director will be chosen, and please tell us when you expect that the selection will be made. Please also consider adding a discussion in Risk Factors disclosing the conflict of interest of all of the directors, as it appears that any of them may be chosen for the Columbia board.
Response: Disclosure under “Interests of West Coast Directors and Executive Officers in the Merger (page 84) has been revised to state that four of the current West Coast directors (naming them) are eligible for nomination to fill the single board membership position, and disclosing that such person must, among other criteria, currently be an independent director of West Coast. The selection will be made prior to the closing of the merger but otherwise the timing of the selection is not currently known. Given the additional disclosure and the current Risk Factor addressing potential conflicts of interest (at page 22), which cross references to the additional disclosure, we believe that the current Risk Factor disclosure is adequate.
Selected Financial Data – West Coast Bancorp, page 20
9. Please include a footnote detailing how you determine the allowance for loan losses and allowance for credit losses as a percentage of nonperforming loans. For example, please disclose the nonperforming loan components which comprise the denominator in these calculations, specifically detailing whether or not accruing and/or nonaccruing troubled debt restructurings are included in this calculation and management’s rationale in this regard.
Response: The disclosure has been revised as requested. (page 27)
Unaudited Pro Forma Condensed Combined Statement of Income, pages 25-26
10. Please revise to disclose in a pro forma note how the weighted average number of pro forma basic and fully diluted common shares was determined for each of the periods presented.
Response: The disclosure has been revised as requested. (pages 37 and 38)
Note 4 – Pro Forma Adjustments, page 28
11. Please tell us why the 5% fair value adjustment applied against the carrying value of the loans being acquired is an appropriate measure reflective of credit and pricing adjustments.
Ms. Kathryn McHale
December 28, 2012
Page
Response: We believe the 5% fair value adjustment against the carrying value of the portfolio is appropriate because it was based on the assumptions market participants would utilize in pricing the portfolio in an orderly transaction in the most advantageous market. In conjunction with its own internal resources, Columbia utilized third-party experts to review and perform loan due diligence on the West Coast loan portfolio. The comprehensive loan due diligence process included a detailed underwriting process and review for all commercial loans exceeding $1 million as well as a sample of commercial loans from historically high risk loan categories. Based on this scoping approximately 65% of the commercial loan portfolio was selected. This review concluded that the commercial loan portfolio had expected losses of approximately 2.5% based on both the income and market approaches pursuant to ASC 820, the FASB’s Fair Value Measurement topic, as prescribed by ASC 805, the Business Combinations topic. A discounted cash flow analysis was prepared for the residential and consumer loan portfolios utilizing a discount rate of 6.69% and it was determined that the residential and consumer loan portfolios had a more significant share of the embedded risk with expected losses of approximately 12%, due to a heavy concentration of stand-alone 2nd mortgages. The weighted average expected losses of the combined loan portfolios was approximately 5%. The loan mark was built up based on probability of default, loss given default, and recovery lag estimates generated for each sector of the loan portfolio.
12. Please revise pro forma Note F to disclose how the amount of “core” deposits (i.e. interest or noninterest bearing transaction or time deposits, etc.) was determined and why a fair value adjustment of 1% is appropriate given the differing types of deposits. Also address why a shorter term (e.g. estimated life of the deposits) would not be a more appropriate measure in determining the amortization period.
Response: Pro forma Note F has been revised as requested. (page 35) Although there are differing types of deposits, based on the similarity of rates paid on each deposit type and time deposits being less than 10% of West Coast’s total deposits, further segmentation of the deposits for the calculation of the core deposit intangible estimate was not deemed necessary.
13. With regard to pro forma Note J and the estimated change in control payments, please tell us how you determined these estimated amounts to be factually supportable under Rule 11-02(b)(6) of Regulation S-X.
Response: The estimated change in control payments were determined by first identifying all individuals at West Coast that had change in control agreements in place and calculating the change in control payment for each of these individuals. The list of individuals was then reviewed and revised to include only those individuals for which it was estimated that a change in control payment, pursuant to the contractual terms, would actually be made.
Ms. Kathryn McHale
December 28, 2012
Page
Risk Factors, page 33
14. Please move this section in its entirety so that it is located directly after the Summary. Refer to Item 503(c) of Regulation S-K
Response: The Risk Factors section has been moved as requested. (page 18)
The merger agreement limits West Coast’s ability to pursue an alternative transaction, page 34
15. Please make your disclosure more clear in this section by clarifying that the termination fee is not triggered solely by West Coast shareholders voting against the transaction.
Response: The disclosure has been revised as requested. (page 19)
The Merger, page 38
16. Please revise the first paragraph of this section to remove the language “this summary does not purport to be complete” and “this section is not intended to provide you with any factual information.”
Response: The requested change has been made. (page 42)
Regulatory Approvals Required for the Merger, page 47
17. We note that West Coast is obligated to inform and consult with the Federal Reserve Bank of San Francisco regarding payment of dividends, and also that they are subject to a Memorandum of Understanding with the FDIC that restricts their ability to pay dividends. Please disclose and describe any approvals or communications that will be required in connection with the consulting obligation or the MOU in order to complete the merger.
Response: West Coast’s Memorandum of Understanding with the FDIC and the Oregon Department of Consumer and Business Services Division of Finance and Corporate Securities was removed effective November 30, 2012. However, while West Coast remains subject to the consulting obligation with respect to the Federal Reserve Bank of San Francisco with regard to the payment of dividends, no approvals will be required in connection with the consulting obligation or the terminated Memorandum of Understanding in order to complete the merger.
Ms. Kathryn McHale
December 28, 2012
Page
Background of the Merger, page 48
18. We note your disclosure on page 49 that West Coast representatives had discussions with two other financial institutions but that no definitive transaction proposal resulted. Please revise to provide more detail as to why the discussions ended, and please explain whether the two financial institutions were give data room access or otherwise conducted due diligence.
Response: The disclosure has been revised as requested. (page 53)
Recommendation of the West Coast Board of Directors and Reasons for the Merger, page 52
19. Please revise to include any negative or potentially negative factors that the board considered when determining whether the merger was advisable and in the best interests of West Coast and its shareholders. Please make similar disclosure with respect to the Columbia board’s recommendation.
Response: With respect to West Coast, the disclosure has been revised as requested. (pages 56 and 57)
With respect to Columbia’s board’s recommendation, the potential risks and potentially negative factors that the board considered have been supplemented. (page 77)
Columbia – Comparable Company Analysis, page 57
20. We note that Sandler O’Neill excluded First California Financial Group from the Columbia peer group. Please explain why it was excluded. We note further that it was not excluded from the West Coast peer group.
Response: We respectfully advise the Staff that First California Financial Group (“FCFG”) was excluded from the Columbia peer group because, as of the date of the Sandler O’Neill fairness opinion, FCFG had received a publicly disclosed merger proposal and several publicly disclosed letters from shareholders encouraging the FCFG board of directors and management to carefully consider its strategic alternatives, including a possible sale of the company. As a result, FCFG’s stock price was uniquely impacted by this news and was not considered comparable to the other companies in the Columbia peer group. For these reasons, FCFG was also excluded from the West Coast peer group. We address the Staff to page 63 of Amendment No. 1.
Ms. Kathryn McHale
December 28, 2012
Page
Sandler O’Neill’s Relationship, page 64
21. Please provide the approximate amount of the transaction fee that Sandler will receive as compensation for its duties as financial advisor.
Response: The disclosure has been revised as requested. (page 76)
22. Please disclose the aggregate amount paid to Sandler O’Neill by West Coast over the past two years, as required by Section 1015(b)(4) of Regulation M-A. Please provide similar disclosure with regard to any payments to Sandler by Columbia for any services rendered over the past two years.
Response: The disclosure has been revised as requested. (page 76)
Summary of analysis by KBW, page 71
23.
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CORRESP 1 filename1.htm Correspondence December 28, 2012 Filed on EDGAR Ms. Kathryn McHale Senior Staff Attorney Division of Corporation Finance United States Securities and Exchange Commission 100 F. Street, N.E. Washington D.C. 20549 Re: Columbia Banking System, Inc. Registration Statement on Form S-4 Filed November 2, 2012 File No. 333-184742 Form 10-K for the Year Ended December 31, 2011 Filed February 29, 2012 File No. 000-20288 West Coast Bancorp Form 10-K for the Year Ended December 31, 2011 Filed February 24, 2012 Form 10-Q for the Quarter Ended September 30, 2012 Filed November 2, 2012 File No. 001-34509 Dear Ms. McHale: Enclosed please find Columbia Banking System, Inc.’s (“Columbia”) and West Coast Bancorp’s (“West Coast”) responses to the comments of the staff (the “Staff”) of the Securities and Exchange Commission set forth in your letter of November 29, 2012 (the “Comment Letter”) related to the above-referenced filings. Columbia has also revised its Registration Statement on Form S-4 in response to the Staff’s comments and is filing concurrently with this letter Amendment No. 1 to the Registration Statement (“Amendment No. 1”), which reflects these revisions and clarifies certain other information. For the convenience of the Staff, each comment from the Comment Letter corresponds to the numbered paragraph in the Comment Letter and is restated in italics prior to the response to such comment. Page references in the text of this letter correspond to pages and captions in Amendment No. 1. Ms. Kathryn McHale December 28, 2012 Page 2 Registration Statement on Form S-4 Cover Page 1. We note that the value of the consideration to be received by West Coast shareholders will vary with the trading price of the Columbia common stock. Please revise to briefly summarize the formula that will be used to calculate the consideration. Response: The disclosure has been revised as requested. (Cover Page) Questions and Answers What will each West Coast Shareholder Receive in the Merger? page 1 2. It appears that Columbia shareholders will be diluted upon the issuance of common stock as a result of the merger. Please revise your disclosure in this section and throughout the proxy statement/prospectus to disclose the amounts by which shareholders will be diluted, in terms of ownership as well as book value, if applicable. Response: The disclosure has been revised as requested. (page 1) How does a West Coast shareholder elect the form of consideration he or she prefers to receive? page 2 3. Revise your disclosure in this section and throughout the proxy statement/prospectus to include a placeholder for the exact date of the election deadline. To the extent that you will not be able to include such date when the proxy statement/prospectus is delivered to shareholders, please tell us how you will convey the deadline to shareholders. Response: The date of the election deadline will not be known when the joint proxy statement/prospectus is delivered to shareholders. Columbia and West Coast will issue a press release announcing the date of the election deadline at least five business days before that deadline. Additionally, Columbia and West Coast will post the date of the election deadline on their respective web sites, also at least five business days before that deadline. The disclosure has been revised accordingly. (pages 2 and 49). Ms. Kathryn McHale December 28, 2012 Page 3 What happens if an election is not made prior to the election deadline? page 3 4. Please revise to disclose what will happen if holders of the Series B Preferred Stock, the Class C Warrants or the Restricted Shares do not make an election prior to the election deadline. Response: The disclosure has been revised as requested. (page 4) How do the boards of directors of Columbia and West Coast recommend that I vote? page 4 5. Revise to include a separate discussion of the interests of the directors and officers of Columbia and West Coast with respect to the matters to be acted upon. Refer to Item 5 of Schedule 14A. Response: With respect to West Coast, the disclosure has been revised as requested. (page 5) With respect to Columbia, we have reviewed the requirements of Item 5 of Schedule 14A and have determined that no director or executive officer of Columbia has a disclosable interest in the matters to be acted upon. Summary Recommendation of the Columbia Board of Directors, page 12 6. Please supplementally provide to the staff the board books or other materials, including projections, the boards considered in making their recommendations to shareholders. Response: Materials have been separately provided to the Staff on a supplemental basis by West Coast and Columbia, respectively, on a confidential basis. In addition, Amendment No. 1 has been revised to include information regarding the financial projection information for each of West Coast and Columbia and considered by the West Coast board as part of the presentation from its financial advisor. (beginning on page 61) Interests of West Coast Directors and Executive Officers in the Merger, page 13 7. Please revise to provide the specific information with respect to each of the bullets and quantify the compensation amounts that directors and officers will receive in connection with the merger. In addition, revise to disclose that Mr. Robbins and Ms. McKeown have entered into employment agreements with Columbia. Please make corresponding revisions to the discussion of Risk Factors on page 36. Response: The disclosure has been revised as requested. (pages 13 and 22) Ms. Kathryn McHale December 28, 2012 Page 4 8. We note that one of the directors of West Coast will be recommended to serve on Columbia’s board of directors following the merger. Revise to explain how that director will be chosen, and please tell us when you expect that the selection will be made. Please also consider adding a discussion in Risk Factors disclosing the conflict of interest of all of the directors, as it appears that any of them may be chosen for the Columbia board. Response: Disclosure under “Interests of West Coast Directors and Executive Officers in the Merger (page 84) has been revised to state that four of the current West Coast directors (naming them) are eligible for nomination to fill the single board membership position, and disclosing that such person must, among other criteria, currently be an independent director of West Coast. The selection will be made prior to the closing of the merger but otherwise the timing of the selection is not currently known. Given the additional disclosure and the current Risk Factor addressing potential conflicts of interest (at page 22), which cross references to the additional disclosure, we believe that the current Risk Factor disclosure is adequate. Selected Financial Data – West Coast Bancorp, page 20 9. Please include a footnote detailing how you determine the allowance for loan losses and allowance for credit losses as a percentage of nonperforming loans. For example, please disclose the nonperforming loan components which comprise the denominator in these calculations, specifically detailing whether or not accruing and/or nonaccruing troubled debt restructurings are included in this calculation and management’s rationale in this regard. Response: The disclosure has been revised as requested. (page 27) Unaudited Pro Forma Condensed Combined Statement of Income, pages 25-26 10. Please revise to disclose in a pro forma note how the weighted average number of pro forma basic and fully diluted common shares was determined for each of the periods presented. Response: The disclosure has been revised as requested. (pages 37 and 38) Note 4 – Pro Forma Adjustments, page 28 11. Please tell us why the 5% fair value adjustment applied against the carrying value of the loans being acquired is an appropriate measure reflective of credit and pricing adjustments. Ms. Kathryn McHale December 28, 2012 Page 5 Response: We believe the 5% fair value adjustment against the carrying value of the portfolio is appropriate because it was based on the assumptions market participants would utilize in pricing the portfolio in an orderly transaction in the most advantageous market. In conjunction with its own internal resources, Columbia utilized third-party experts to review and perform loan due diligence on the West Coast loan portfolio. The comprehensive loan due diligence process included a detailed underwriting process and review for all commercial loans exceeding $1 million as well as a sample of commercial loans from historically high risk loan categories. Based on this scoping approximately 65% of the commercial loan portfolio was selected. This review concluded that the commercial loan portfolio had expected losses of approximately 2.5% based on both the income and market approaches pursuant to ASC 820, the FASB’s Fair Value Measurement topic, as prescribed by ASC 805, the Business Combinations topic. A discounted cash flow analysis was prepared for the residential and consumer loan portfolios utilizing a discount rate of 6.69% and it was determined that the residential and consumer loan portfolios had a more significant share of the embedded risk with expected losses of approximately 12%, due to a heavy concentration of stand-alone 2nd mortgages. The weighted average expected losses of the combined loan portfolios was approximately 5%. The loan mark was built up based on probability of default, loss given default, and recovery lag estimates generated for each sector of the loan portfolio. 12. Please revise pro forma Note F to disclose how the amount of “core” deposits (i.e. interest or noninterest bearing transaction or time deposits, etc.) was determined and why a fair value adjustment of 1% is appropriate given the differing types of deposits. Also address why a shorter term (e.g. estimated life of the deposits) would not be a more appropriate measure in determining the amortization period. Response: Pro forma Note F has been revised as requested. (page 35) Although there are differing types of deposits, based on the similarity of rates paid on each deposit type and time deposits being less than 10% of West Coast’s total deposits, further segmentation of the deposits for the calculation of the core deposit intangible estimate was not deemed necessary. 13. With regard to pro forma Note J and the estimated change in control payments, please tell us how you determined these estimated amounts to be factually supportable under Rule 11-02(b)(6) of Regulation S-X. Response: The estimated change in control payments were determined by first identifying all individuals at West Coast that had change in control agreements in place and calculating the change in control payment for each of these individuals. The list of individuals was then reviewed and revised to include only those individuals for which it was estimated that a change in control payment, pursuant to the contractual terms, would actually be made. Ms. Kathryn McHale December 28, 2012 Page 6 Risk Factors, page 33 14. Please move this section in its entirety so that it is located directly after the Summary. Refer to Item 503(c) of Regulation S-K Response: The Risk Factors section has been moved as requested. (page 18) The merger agreement limits West Coast’s ability to pursue an alternative transaction, page 34 15. Please make your disclosure more clear in this section by clarifying that the termination fee is not triggered solely by West Coast shareholders voting against the transaction. Response: The disclosure has been revised as requested. (page 19) The Merger, page 38 16. Please revise the first paragraph of this section to remove the language “this summary does not purport to be complete” and “this section is not intended to provide you with any factual information.” Response: The requested change has been made. (page 42) Regulatory Approvals Required for the Merger, page 47 17. We note that West Coast is obligated to inform and consult with the Federal Reserve Bank of San Francisco regarding payment of dividends, and also that they are subject to a Memorandum of Understanding with the FDIC that restricts their ability to pay dividends. Please disclose and describe any approvals or communications that will be required in connection with the consulting obligation or the MOU in order to complete the merger. Response: West Coast’s Memorandum of Understanding with the FDIC and the Oregon Department of Consumer and Business Services Division of Finance and Corporate Securities was removed effective November 30, 2012. However, while West Coast remains subject to the consulting obligation with respect to the Federal Reserve Bank of San Francisco with regard to the payment of dividends, no approvals will be required in connection with the consulting obligation or the terminated Memorandum of Understanding in order to complete the merger. Ms. Kathryn McHale December 28, 2012 Page 7 Background of the Merger, page 48 18. We note your disclosure on page 49 that West Coast representatives had discussions with two other financial institutions but that no definitive transaction proposal resulted. Please revise to provide more detail as to why the discussions ended, and please explain whether the two financial institutions were give data room access or otherwise conducted due diligence. Response: The disclosure has been revised as requested. (page 53) Recommendation of the West Coast Board of Directors and Reasons for the Merger, page 52 19. Please revise to include any negative or potentially negative factors that the board considered when determining whether the merger was advisable and in the best interests of West Coast and its shareholders. Please make similar disclosure with respect to the Columbia board’s recommendation. Response: With respect to West Coast, the disclosure has been revised as requested. (pages 56 and 57) With respect to Columbia’s board’s recommendation, the potential risks and potentially negative factors that the board considered have been supplemented. (page 77) Columbia – Comparable Company Analysis, page 57 20. We note that Sandler O’Neill excluded First California Financial Group from the Columbia peer group. Please explain why it was excluded. We note further that it was not excluded from the West Coast peer group. Response: We respectfully advise the Staff that First California Financial Group (“FCFG”) was excluded from the Columbia peer group because, as of the date of the Sandler O’Neill fairness opinion, FCFG had received a publicly disclosed merger proposal and several publicly disclosed letters from shareholders encouraging the FCFG board of directors and management to carefully consider its strategic alternatives, including a possible sale of the company. As a result, FCFG’s stock price was uniquely impacted by this news and was not considered comparable to the other companies in the Columbia peer group. For these reasons, FCFG was also excluded from the West Coast peer group. We address the Staff to page 63 of Amendment No. 1. Ms. Kathryn McHale December 28, 2012 Page 8 Sandler O’Neill’s Relationship, page 64 21. Please provide the approximate amount of the transaction fee that Sandler will receive as compensation for its duties as financial advisor. Response: The disclosure has been revised as requested. (page 76) 22. Please disclose the aggregate amount paid to Sandler O’Neill by West Coast over the past two years, as required by Section 1015(b)(4) of Regulation M-A. Please provide similar disclosure with regard to any payments to Sandler by Columbia for any services rendered over the past two years. Response: The disclosure has been revised as requested. (page 76) Summary of analysis by KBW, page 71 23.