RankingBanking 25 - Flipbook - Page 22
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of sleep per night.
he was surprised by the magnitude of the stock
He says the bank worked hard to minimize
market’s reaction to the earnings miss. His team
disruption for clients and staff, communicating
decided to speed up previous plans to cut costs
regularly on the acquisition details. “We didn’t
after the stock price fell. Within about 60 days, an
let things snowball into larger issues when we
undisclosed number of people were laid off.
could have taken care of something earlier in
Piper’s Clark says the management team cut
the process,” he says. “It’s funny, the second you
more than $70 million in expenses in 2024, $20
announce a deal … your competitors will now
million more than they had announced as part
start marketing against you. … It’s on the bank to
of the Umpqua deal. Columbia did so without
make sure that we keep that change as minimal as
using consultants, a point of pride for Stein. Bill
possible.”
Burgess, cohead of financial services for Piper
Sandler, worked as Columbia’s investment banker
Investor Skepticism
Investors also have also been a tough sell. No
on the Pacific Premier deal. He says it was typical
of Stein’s style. “He was able to get done in about
doubt, purchase accounting from the Umpqua
six weeks what McKinsey or Bain or others would
merger accounted for some of the outstanding
take six months [to do],” Burgess says.
performance on Bank Director’s RankingBanking
Plus, Columbia has been improving the balance
— Columbia and Umpqua announced the deal
sheet by reducing wholesale borrowings and
when interest rates were low and closed it as rates
getting rid of mostly brokered, multifamily loans
moved higher. Assets were marked down at fair
inherited from Umpqua. As an example, Umpqua
value at closing, which accretes over time in an
had a $4 billion multifamily loan division with
earnings stream through net interest income, says
only $17 million in deposits associated with it,
Terrell. That amounted to $306 million in pur-
Stein says. “So that’s just math that doesn’t
chase-accounting earnings in 2024 on $1.7 billion
work,” he adds.
of total net interest income, he says.
Also, the bank missed analyst expectations for
As of June, Clark says Columbia put together
four consistent, solid quarters since its fourth
earnings for the fourth quarter of 2023 by about
quarter 2023 earnings miss. “They’ve gotten more
20%, making it hard for some investors to stom-
disciplined, more proactive on the deposit pricing
ach the Pacific Premier deal. “We are wary of
side last year, and that’s helped their margin ex-
investor scrutiny,” wrote Rulis in an April note to
pand, which obviously enhances profitability.”
clients. “The [Pacific Premier] deal is a different
combination, of different size/scale, in a different
operating environment ... and should be treated on
The Next Steps
The bank had four branches in Southern
its own merits. However, the prior M&A overhang
California from the Umpqua deal and also began
will mean [Columbia]’s execution this time around
opening de novo branches in places such as Phoe-
will have elevated scrutiny, in our view.”
nix and Salt Lake City. But it would take over a
For Stein’s part, he attributes the earnings miss
decade to gain the same type of density organ-
in 2023 to rising deposit costs, a higher provision
ically that it would achieve through the Pacific
expense and the fact that the bank didn’t exclude
Premier deal, says Merrywell.
from operating earnings the Federal Deposit
When Stein and Pacific Premier Chairman and
Insurance Corp.’s one-time special assessment to
CEO Steven Gardner started talking in June 2023
pay for the spring 2023 bank failures. Stein admits
about a deal, Stein realized the Pacific Premier
