Columbia expects cost savings from merger to exceed $135 million target

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Columbia Banking System expects to surpass the $135 million cost savings the bank outlined when it announced its bid for Umpqua Holdings.

Executives at the $54 billion-asset bank didn't reveal exactly how much more they anticipate saving, citing uncertainty around certain economic variables. "With inflation and wage pressure that's happened over the past year-and-a-half since we set that target, we wanted to maintain flexibility," Chief Executive Officer Clint Stein told analysts on a conference call Wednesday afternoon.

Columbia will likely decide to make strategic investments that could weigh on the additional cost savings, according to Stein. He said that the bank expects to achieve its original savings target by the end of the third quarter, sooner than the end-of-year time frame it originally pegged.

Columbia's first earnings report since it closed its $5 billion merger with Umpqua Holdings in February painted a picture of a bank with a strong balance sheet that is poised to grow. But the first quarter's results included earnings from both banks over the first quarter, making comparisons with pre-merger Columbia difficult.

 "With the merger and integration successfully behind them, Columbia benefits from having interest rate and credit marks, which will supercharge earnings and provide an additional layer of credit protection," Wells Fargo analyst Jared Shaw wrote in a research note.

Shares of Columbia were up more than 8% in midday trading on Thursday.

Columbia announced the deal to create a powerhouse bank headquartered in the Pacific Northwest in the fall of 2021. It took until January 2023 to receive final regulatory approval from the Federal Deposit Insurance Corp., and the merger closed in late February. The bank's holding company kept the Columbia name and is based out of Tacoma, Washington. The bank itself is still called Umpqua, a more well-known entity among customers, and is based in Portland, Oregon.

The combined bank has a branch network stretching across five states: Washington, Oregon, California, Idaho and Nevada. The bank recently expanded operations into Utah, and it plans to do the same in Colorado and Arizona.

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Columbia reported a decrease in its common equity Tier 1 ratio to 8.9% at the end of the first quarter, down from 11% at the end of 2022. Management expects capital to "free quickly in the coming quarters," Stein said, returning the bank to its long-term target of 9%.

Columbia said that it has no plans to repurchase its shares in the coming quarters, citing an uncertain economic environment.

During the first quarter, deposits were down 4.9% from the fourth quarter of last year, based on the combined deposits of the two banks during the earlier quarter. But Columbia didn't experience major deposit outflows in March like some of its counterparts in the West, including Western Alliance and PacWest.

In the days and hours leading up to the collapse of Silicon Valley Bank, Columbia identified opportunities to pick up business across its operations, Stein said.