Umpqua, Columbia set long timeline for completing merger

With a flurry of recent bank deals awaiting the Federal Reserve’s approval, executives at Columbia Banking System and Umpqua Holdings are predicting that their merger will take longer than usual to close.

A slow approval process may be worth the wait for the two Pacific Northwest-based companies, which are seeking to combine into a $50 billion-asset player that sews together Umpqua’s consumer brand and Columbia’s commercial lending specialties.

The deal is not expected to close until the middle of 2022, according to Columbia CEO Clint Stein, who is slated to become chief executive of the new company. Regulators are expected to spend more time evaluating the deal than they did earlier this year when Columbia agreed to acquire the $1.8 billion-asset Bank of Commerce in Sacramento, California, he said.

“There's a backlog right now at the Fed on approvals of this nature,” Stein said Tuesday during a call with analysts.

Last month, First Citizens BancShares in Raleigh, North Carolina, and CIT Group in New York said that they were extending the deadline for closing their $2.2 billion merger by more than four months. The deal, announced in October 2020, has yet to be approved by the Fed.

Still, the Fed has not indicated that a stack of bank merger applications is slowing down its processing times. The median processing time for approvals has held steady in recent years at about 42 days, according to a report published by the Fed Board of Governors in September 2020.

About 7% of proposed mergers in the first half of 2019 received negative public comments, which can slow down the process, up from 5% in 2016. But the Fed had been moving through those deals at a median of 118 days in 2019, down from 162 days three years earlier.

Numerous recent deals involve relatively large banks, and the Biden administration has tasked federal regulators with reviewing their approval processes in an effort to scrutinize consolidation more carefully.

“We expect that it will be a longer approval process than what we just went through with our Bank of Commerce Holdings approval that went very quickly,” Stein said.

Some recent deals have caught the attention of community groups, which are asking the Fed for public hearings that could lengthen the approval process. Advocates have flagged Old National Bancorp’s deal for First Midwest Bancorp, along with U.S. Bancorp’s proposed acquisition of MUFG Union Bank.

The structure of the Umpqua-Columbia deal resembles a pure merger, rather than another in the recent series of takeovers in which a capital-rich regional bank buys a smaller company with either cash or stock.

Umpqua shareholders will receive slightly more than half of a Columbia share for each Umpqua share they own. The two banks will split the 14 board seats evenly. The holding company will be named Columbia Banking System, and the bank will be called Umpqua Bank.

“Columpqua probably wouldn't do it,” Jon Arfstrom, an analyst with RBC Capital Markets, joked during the call Tuesday.

The deal grew out of a decision by Oregon state lawmakers at the height of the COVID-19 pandemic last year to send $500 relief checks to residents.

Cort O'Haver, the president and CEO of Roseburg, Oregon-based Umpqua, called several banks, including one of the nation’s 10 largest, seeking help in distributing the stimulus checks sooner, he said. Stein, the CEO of Tacoma, Washington-based Columbia, was the only executive who agreed to assist.

“Clint jumped in with both feet,” O’Haver said on the call. “And we were able to provide those funds to participants in the state of Oregon very quickly.”

“I thought I was your first call, Cort,” Stein joked on the call Tuesday.

Later, after learning how complementary the two companies were, O’Haver would again reach out to Stein with the idea for the merger. Executives at the two companies said that their lending units will add to each others’ strengths to boost loan growth coming out of the pandemic.

Roughly 36% of Columbia’s book is tied to commercial and industrial loans, compared with 21% of Umpqua’s, according to a presentation to investors about the deal. Another 41% of Columbia’s portfolio is in commercial real estate, compared with 27% at Umpqua.

Meanwhile, Umpqua puts a bigger emphasis on residential mortgage lending, including loans on both one-to-four unit properties and multifamily buildings.

Columbia has worked to build its own mortgage unit over the past few years, but it “pales in comparison to the machine that Umpqua has built,” Stein said.

Larger banks looking to pick up more scale on the West Coast may be running out of chances after Umpqua and Columbia announced their merger Tuesday, said Dan Rosenbaum, a partner at Oliver Wyman.

“There's a scarcity of targets that move the dial for the larger banks,” he said. “There are now fewer out there than last year."