The Columbia-Umpqua Not-Quite Merger, Explained

Joan McGuire

Experts say the Columbia-Umpqua union isn’t as strange as it seems, and gives Oregon companies, and smaller Oregon banks, new opportunities.  

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Last month, Tacoma-based Columbia Banking System Inc. announced it would purchase Portland-based Umpqua Holdings Corporation. The deal has some unusual elements, but could help both organizations survive in an increasingly competitive West Coast banking environment. It could also provide smaller banks with more opportunities to take clients looking for smaller, more personalized service. 

At first blush, the deal looks like an inversion of a typical acquisiton: Columbia has roughly $20 billion in assets and Umpqua has roughly $30 billion — yet Columbia was the buyer. 

But banking veterans say the merger makes perfect sense, and is in line with a banking landscape more favorable to larger players. Growth and expansion is top-of-mind at Umpqua, which recently announced its expansion into Arizona with a middle-market banking team, and the details of the deal make both sides feel more like a merger of equals than a buyout. 

By the time the transaction is complete — in mid-2022 — the bank will be one of the three largest in the region. 

A statement from Umpqua described the new bank as “The West Coast’s leading regional bank,” with a combined $43 billion in deposits.

Even though they are being bought out, Umpqua shareholders will own 62% of the combined company, while those with stock in Columbia will take on 38%, according to Umpqua Holdings. That’s closer to the rate one might expect to see from a larger company merging with a smaller one. 

The arrangement might be necessary for both banks to adapt to the evolving banking climate, which has seen large banks and small community banks thriving, but mid-size regional banks being priced out by compliance and the competition. 

“In order to survive in this banking environment, you have to get bigger or you have to get smaller. That was an issue when I left and it’s still an issue now,” says Rodger Terrall, who headed Umpqua’s Lane County commercial lending department from 1996 until his retirement in 2015. “These two banks know they have to stick together.” 

Mid-sized banks around the country have also followed this pattern. Montana-based First Interstate Bank announced it would merge with South Dakota-based Great Western Bank in September. In March, Medford-based People’s Bank of Commerce completed its merger with Albany-based Willamette Community Bank for a combined total assets of $742 million. 

Smaller banks with personalized service can get by keeping costs down while working with a small pool of valuable clients. Large banks have more regulatory oversight and cost of compliance, but can use larger profit margins to deploy technological efficiencies and serve a broad customer base. 

Terrall says medium-size, regional banks get the short end of both sticks, having higher cost of compliance and the ability to serve fewer customers.

“Compliance is one of the issues. It’s difficult for a regional issue bank to keep up. By merging you can deal with it better and combine your technology to create efficiencies,” says Terrall.

As Terrall sees it, the banks are actually a great fit for one another. 

“The banks go well together because there’s a similar service-oriented culture, there’s not a lot of overlap, and they serve the same kind of commercial businesses.”  

The move will also help the banks compete for businesses in a growing West Coast market. Chris Hemmings, chief operating officer at Summit Bank in Eugene, says Oregon and the rest of the West Coast is looking more and more appetizing to larger banks looking to cash in on the increasing economic activity. 

“We are seeing the West Coast market continue to expand and grow. US Bank acquired Union Bank because of their presence in Oregon, California and Washington. Banks of all sizes on the west coast are looking to elevate,” he says. “There was some slowdown from covid, but we’ve seen a little more clarity in the economy since then.” 

Linda Navarro, president and CEO of the Oregon Bankers Association, says the deal is exciting for Oregon companies in need of a larger bank’s services, and will have a local company large enough to accommodate their businesses. 

“The result of the Columbia and Umpqua merger is a bank on a scale that we haven’t had headquartered in Oregon for ages, and of an asset size we’ve never had,” she says. “It’s great for Oregonians and local businesses to have banks of various sizes and geographies competing for their business.”

Part of that competition could come from smaller banks. By merging, Umpqua and Columbia will compete with larger players through scale and synergies, which could provide opportunities for smaller community banks to poach business clients interested in more personalized service. 

“We’re cautiously optimistic about this,” says Jenny Bennett, market president of Summit. “I’m sure the existing clients will be taken care of, but business is oscillating. This gives local community banks an opportunity to pick up market share.”  

Wall Street already seems wary of the strange marriage: the $5.1 billion price tag will dilute Columbia’s tangible book value by 6%, and both company’s stocks fell in reaction to the announcement — Columbia’s by 14% and Umpqua by 5%. 

But insiders say this drops is more skittishness from the strange deal structure rather than actual concerns about the new bank’s viability. 

Dr. Thomas Potiowsky, chair of the Northwest Economic Conference and former board of the Seattle Federal Home Loan Bank, says regulatory compliance makes one bank purchasing another easier than a ture merger. 

“True mergers are difficult,” says Potiowsky. “Given accounting rules and regulations, it is much easier to have one firm acquire the other. It’s possible that Umpqua and Columbia believed the bank holding organization of Columbia was easier for the merger, thus Columbia is the acquiring bank.” 

Potiowsky helped oversee the merger of Seattle Federal Home Loan Bank and the Des Moines Federal Home Loan Bank, and knows firsthand the regulatory compliances associated with mergers. He also says the mounting challenges faced by regional banks make the need for these deals urgent. 

“Small regional banks have always had tough competition from the big banks, not to mention credit unions. Now you have Fintech banks adding competition for everyone. I expect more mergers among regional banks, which is not really a new trend.”

There could also be a small amount of ego surrounding the proceedings. The smaller Columbia doesn’t have to feel like the smaller fish, and Umpqua gets to feel valued, having its stocks bought at 12% above market share

“I think there’s always a little bit of pride involved for the shareholders,” says Terrall. “I think this is supposed to be a feel-good situation for everyone involved.”

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