Umpqua, Columbia deal could require divestitures in 9 counties

Columbia Banking System Inc.'s $5.15 billion merger with Umpqua Holdings Corp. may require deposit divestitures, according to an S&P Global Market Intelligence analysis.

After the acquisition, the combined company will operate more than 350 branches across California, Oregon, Washington, Nevada and Idaho. Based on an analysis at the county level using the Herfindahl-Hirschman market concentration index, or HHI, regulators could require divestitures totaling $324.2 million in deposits across nine counties.

Based on the county-level analysis, the largest deposit divestitures would be $99.8 million in Klickitat County, Wash., followed by $58.3 million in Glenn County, Calif., and $46.1 million in Malheur County, Ore.

However, if the HHI analysis is run using deposit data at a broader geography level — looking at metropolitan statistical areas — the deal would require only $47.5 million of deposit divestitures across two MSAs: Centralia, Wash., and Newport, Ore.

HHI scores are calculated by summing the squares of each participant's market share in a geography. Regulators use the analysis to measure market competitiveness and evaluate potential antitrust concerns. The higher the HHI number, the higher the market concentration. Divestitures are required if the HHI analysis meets two thresholds: the deal increases the HHI by at least 200 basis points, and the HHI must be greater than 1,800 basis points after the merger.

While regulators use HHI analysis, the calculation is not always straightforward and actual deposit divestitures often vary significantly from the HHI analysis. Regulators can run HHI calculations at different geographies, such as a Federal Reserve-defined market area, or look at products other than deposits, such as small-business lending. Regulators can also consider credit unions, which are not included in S&P Global Market Intelligence's analysis, when evaluating a market's competitiveness. And while regulators could require a certain amount of divestitures, a bank may have to sell more branches or deposits to attract a buyer.