Columbia Banking System Inc (NASDAQ:COLB) announced its merger agreement with West Coast Bancorp (NASDAQ:WCBO) to increase its business operations in the states of Washington and Oregon.

West Coast Bank

The two companies inked an approximately $506 million merger transaction, to combine their leading Pacific Northwest community bank franchises. The combined company would have $7.2 billion in assets and 150 branches.

Under the terms of the merger agreement, Columbia Banking System Inc (NASDAQ:COLB) will pay West Coast Bancorp (NASDAQ:WCBO) $264.5 million cash and 12.8 million shares. The acquisition price was $23.10 per share, a 14.5% premium, based on the closing price of the West Coast Bancorp stock on September 25, 2012. Shareholders of West Coast will own 24 percent of the common stock of the combined company.

One of the current independent members of West Coast’s board of directors will have a seat in the board of directors of Columbia. Hadley S. Robbins, current chief credit officer of West Coast, will serve as Group Manager for Columbia Bank in the State of Oregon, after the closing of the transaction. He will supervise the commercial and retail banking operations in the state. Robert D. Sznewajs, President and Chief Executive Officer of West Coast, plans to retire after helping in the transition process.

In a statement Sznewajs said, “This merger is a rare fit of two high quality organizations with similar business models, cultures, and values.  We think the transaction will provide outstanding benefits to our customers, communities, shareholders, and other constituencies, along with enhancing our proven approach to community banking.”

On the other hand, Melanie J. Dressel, President and Chief Executive Officer of Columbia, believed the merger of both companies is an exciting opportunity to create a premier community banking franchise in the Pacific Northwest. She said, “On a combined basis, we will have extensive coverage throughout Washington and Oregon, including serving all major MSAs.”

The board of directors of both companies unanimously approved the merger. Both companies expect to complete the transaction during the first quarter of 2013. The transaction is subject to regulatory approvals.

Shares of Columbia Banking System are trading around $18.45 per share. West Coast Bancorp stock is trading around $22.45 per share on Tuesday morning.