Umpqua Marking Time Ahead Of A Major Merger

When I last wrote about Umpqua (NASDAQ:UMPQ) in February, I said that while I liked the long-term potential of the bank after its pending combination with Columbia (COLB), the short-term set-up wasn't so great. Between pressures on the mortgage banking business, non-exceptional asset sensitivity, and limited expense reduction and capital return options pending deal close, I was concerned that the shares may not be set to outperform, and so it has been, as the roughly 13% decline in the share price has modestly underperformed the regional bank group (by around 5%).

I still like the long-term prospects for the bank. Mergers of equals (or MOEs) always carry above-average execution risk, but the synergy and cross-selling opportunities seem legitimate and likely to build value. Not only will the combination extend both banks' operating footprints, but it will also create complementary product offerings in commercial lending as well as enhanced operating scale. At a point where banks are still generally out of favor, I like what I see with double-digit long-term annualized return potential at today's price.

 

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Umpqua Marking Time Ahead Of A Major Merger