Umpqua Holdings Corp. and Columbia Banking System Inc. management teams highlighted the benefits of scale in their $5.1 billion deal while acknowledging regulatory approvals could take time.
On a deal call, executives said the merger would allow the pro forma bank to hold larger loans and accelerate strategic initiatives in areas such as corporate lending. The banks did not cast the combination as a merger of equals, though it bears some of that format's typical features, including an even board split between Umpqua and Columbia for the combined company.
Columbia, the smaller bank at $18.01 billion of assets, will issue 0.5958 share for each share of Umpqua, with $30.28 billion of assets, a 12.7% premium for Umpqua shareholders based on closing prices the day before the announcement.
But the market wiped out the premium soon after announcement. Umpqua shares were down about 4.9% around 12:30 p.m. ET, and Columbia's were down 14.4%. On the deal call, analysts were generally positive on the transaction, though a couple highlighted how large deals can run into problems when integrating cultures. Executives said culture fit was strong, in large part due to the considerable overlap in the two banks' operating markets.
The banks project cost savings equal to 12.5% of their combined noninterest expenses, and 23% GAAP EPS accretion for Columbia and 8% for Umpqua. They also projected 5.9% tangible book value dilution with an earnback of 2.6 years.
From a regulatory perspective, executives said they anticipate "limited" required deposit divestitures — regulators often require banks to sell deposits if there are anti-competitive concerns. But management said they expect the regulatory approval process to be relatively lengthy with an expected closing date in the middle of 2022.
"There's a backlog right now at the [Federal Reserve] on approvals of this nature," Columbia CEO and President Clint Stein said. "So we expect that it will be a longer approval process than what we just went through with" Columbia's acquisition of Bank of Commerce Holdings, which completed this month.
Stein will become CEO of the pro forma bank, and Umpqua CEO and President Cort O'Haver will become executive chair. Umpqua shareholders will own 62% of the combined company, and Columbia shareholders will own 38%. The holding company will retain the Columbia name and ticker, and the operating bank will retain the Umpqua brand.
Neither bank needed to do the deal, executives said, but management said they saw an opportunity to build a stronger company based on complementary cultures and a familiarity with one another since they operate in overlapping markets.
Stein said consideration of a merger started with a call from O'Haver. "It became very clear how similar we are," he said. "In particular, we're in a lot of rural communities and we're there together."
The discussions made apparent "the similarities and how we can truly scale up, make deeper investments and more relevant customer solutions," O'Haver said.
O'Haver said the two banks have shared "a lot of employees" moving back and forth between them over the years and deepened their familiarity in 2020 when they collaborated in helping to distribute pandemic relief payments from the state of Oregon.
Columbia, which executives said has a strong small business platform, delivers a loan portfolio with a higher proportion of commercial loans, and Umpqua's deposit portfolio is about 61% retail and 39% commercial.
"Columbia has an exceptional commercial lending reputation, and we're building one," O'Haver said. But "we are more similar than what the market has perceived," and the deal accelerates strategic growth at both companies. Umpqua also brings an equipment leasing business and significant corporate lending.
The scale of the combined company will allow the bank to retain clients as they get bigger, O'Haver said. "As companies grow [from] small businesses to middle market businesses to corporate businesses, those companies can grow within our balance sheet," he said. "So we aren't faced with them getting too big for our institution and having to go to a competitor."
Stein added that the combined bank, which will be the only bank headquartered in the Northwest with more than $50 billion in assets, will be able to retain larger loans instead of selling participations to other institutions.
The combined bank will have a significant branch footprint in Seattle and Portland, Ore., in addition to other markets across Oregon, Washington, California, Idaho and Nevada. "What we're creating is something that hasn't existed in our market for 25 years," Stein said.