Umpqua expects Columbia merger to close in Q3

During Umpqua Holdings' earnings call, executives said they were hopeful that the Portland, Oregon, company's deal to merge with Columbia Banking System in Tacoma, Washington, will close before October. 

Cort O'Haver, Umpqua's president and chief executive, said he expects to close the deal in the third quarter, with integration taking place in 2023. However, regulators have still not approved the transaction. During Thursday's earnings call, O’Haver said the two banks hadn’t received an approval date yet.

The merger, which was announced in October, would create a $50 billion-asset regional bank along the West Coast. The $20.6 billion-asset Columbia would be the acquirer, though shareholders of the $30.1 billion-asset Umpqua would own 62% of the stock of the combined company. The holding company would use the Columbia name while the banking unit expects to take the Umpqua brand. 

Cort O'Haver - NEW
Besides giving an update on the timing of Umpqua's merger with Columbia, Cort O'Haver, president and CEO of Umpqua, said during an earnings call that "home lending is facing significant headwinds given the sharp increase in mortgage rates."

When the deal was announced, the companies noted that it could take longer to approve than Columbia’s purchase of Bank of Commerce Holdings in October. They set a mid-2022 timeline for closing. Other recent transactions, such as First Citizens BancShares’ purchase of CIT Group, have faced delays in getting regulatory approval. 

Industry experts said they are not worried that regulators have yet to approve the Umpqua-Columbia merger. 

"I'm not concerned about Umpqua because it seems they certainly have good relations with their regulators. It's highly likely that they have been talking to them all along," said Jared Shaw, an analyst at Wells Fargo Securities. Industrywide, deals are taking longer because of a "political climate where the regulators want to make sure that they're giving all proper due diligence," he added. 

Clint Stein, president and CEO of Columbia, said during his bank’s earnings call on Thursday that employees were waiting to announce retirement since some positions would need to be eliminated after the merger. The lingering uncertainty "creates a point of frustration for them," added Stein, who would become CEO of the combined institution.  

Columbia posted record profits in the second quarter, earning $58.8 million, up 7% from a year earlier. Earnings per share of 79 cents beat analyst expectations by 2 cents.

Total loans increased 21% to $11.3 billion year over year, according to its earnings release. About a quarter of that growth was attributed to agricultural and finance sectors while real estate leasing, health care and construction also contributed to the increase, Chris Merrywell, chief operations officer at Columbia, said on the call.

"A lot of the business that we've won over the last couple of years, are prospects that we've called on for in some cases 10-plus years, and they just didn't really like the experience or the lack of availability of their existing bank," when rivals withdrew from in-person services during the pandemic, said Stein, who added Columbia is continuing to accelerate hiring.

Meanwhile, Umpqua's net income for the quarter fell 32% to $78.6 million year over year even though net interest income grew by 8%. This fell short of analyst expectations of 39 cents by 3 cents. 

Umpqua said this was largely a result of weakness in its mortgage portfolio because of rising interest rates. Residential mortgage banking revenue totaled $30.5 million, down 31% from a year earlier and less than half of what the bank recorded in the first quarter. 

"As an industry, home lending is facing significant headwinds given the sharp increase in mortgage rates," O’Haver said. 

Umpqua reported $2.7 million and Columbia recorded $3.9 million in merger-related expenses. 

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