Business Combinations

12 Months Ended

Dec. 31, 2024

(23)	Business Combinations

On January 20, 2023, the Company completed the acquisition from Columbia State Bank of three branches located in the California cities of Colusa, Willows, and Orland, in accordance with a Purchase and Assumption Agreement dated as of November 5, 2022. The acquired assets included all the real property, cash on hand, personal property, safe deposit agreements, books and records along with certain loans (including accrued interest and fees) booked at the branches or allocated by the seller to the acquired branches. The assumed liabilities primarily consisted of the deposits booked in the branches or allocated by the seller to the acquired branches.

In accordance with ASC 805, Business Combinations, the Company recorded a bargain purchase gain of $1,405 and $4,970 of core deposit intangibles on the acquisition date. The core deposit intangible will be amortized using the sum of the year’s digits method over the expected life of 10 years with no significant residual value. For tax purposes, acquisition accounting adjustments including the core deposit intangible are all non-taxable and/or non-deductible. Acquisition related costs of approximately $0 and $250 are included in the income statement for the years ended December 31, 2024 and 2023, respectively.

The Company recorded the fair values based on the valuations available as of reporting date. In accordance with business combination accounting guidance, we evaluated these fair values for up to one year following the acquisition date of January 20, 2023. The valuations below were final one year following the acquisition date.

This acquisition enabled the Company to extend its existing footprint and provided additional core deposit funding for future growth and liquidity and is expected to enhance profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded region.

The following table summarizes the consideration paid for the acquired branches and amounts of assets acquired and liabilities assumed that were recorded at the acquisition date (in thousands):

	Acquired Branches January 20, 2023
Fair value of consideration received:
Cash consideration	$	103,425
Total fair value of consideration received		103,425
Assets acquired:
Cash and cash equivalents		1,284
Loans		4,006
Premises and equipment		3,621
Core deposit intangible		4,970
Other assets		15
Total assets acquired		13,896
Liabilities assumed:
Deposits		115,914
Other liabilities		2
Total liabilities assumed		115,916
Total net liabilities assumed		102,020
Bargain purchase gain recognized	$	1,405

A summary of the estimated fair value adjustments resulting in the bargain purchase gain recorded in the branch acquisition are presented below (in thousands):

	Acquired Branches January 20, 2023

Cash consideration received	$	103,425
Less:
Cost basis of net liabilities assumed		(107,097	)
Fair Value Adjustments:
Loans		(363	)
Premises and equipment		307
Core deposit intangible		4,970
Deposits		163
Bargain purchase gain recognized	$	1,405

The loan portfolio of the acquired branches was recorded at fair value at the date of acquisition. For the purposes of the valuation analysis, the loan portfolio was segmented based on loan type and credit quality. None of the acquired loans were considered purchased credit deteriorated (PCD) at acquisition. The fair value of the acquired loans was calculated on a loan-level basis using the discounted cash flow method.

The Company recorded a core deposit intangible of $4,970 at acquisition. A core deposit intangible refers to the intangible asset that represents the cost savings derived from available core deposits to an alternative funding source. The fair value of the core deposit intangible was calculated using a net cost savings method based on the present value of the estimated net cost savings attributable to the core deposit base over the expected remaining life of the deposits (plus the present value of the tax amortization benefit). The cost savings derived from the core deposit balance was calculated as the difference between the prevailing alternative cost of funds and the estimated cost of the core deposits.

The Company assumed net liabilities, at fair value, of $102,020 at acquisition in exchange for cash consideration received of $103,425. Under accounting guidance, a bargain purchase gain results if the fair value of consideration received is more than the fair value of the liabilities assumed. Because the cash consideration received exceeded the fair value of liabilities assumed, the Company recorded a bargain purchase gain of $1,405 related to the branch acquisitions during the first quarter of 2023. The bargain purchase gain is separately reported as a component of non-interest income in our Consolidated Statements of Income for the year ended December 31, 2023.

We believe that we were able to negotiate a bargain purchase price primarily as a result of Columbia State Bank being required to divest of certain branches (along with the associated deposits and loans) for competitive reasons in accordance with a Letter of Agreement between Columbia State Bank, Umpqua and the Department of Justice Antitrust Division. This agreement was reached in conjunction with the Department of Justice’s required approval of the merger of Columbia State Bank and Umpqua. The required divestiture, in conjunction with the rural location of the branches acquired, allowed the Company to negotiate a favorable purchase price that, when combined with changes in market conditions between the date of agreement and the closing date, resulted in the recognition of the bargain purchase gain. The Company completed the required reassessment prior to concluding recognition of a bargain purchase was appropriate.