Overview

Columbia Banking System, Inc. (NASDAQ:COLB) is a diversified financial holding company that provides a wide range of banking, private banking, mortgage, and other financial services to corporate, institutional, small business, and individual customers. The company reported annual net income of $348.72 million, annual revenue of $2.72 billion, annual operating cash flow of $508.77 million, and annual free cash flow of $423.23 million in its latest fiscal year.

Business Overview

Columbia Banking System, Inc. was founded in 1993 and is headquartered in Tacoma, Washington. The company operates through its wholly-owned banking subsidiary, Umpqua Bank, which provides commercial and retail banking services, mortgage banking services, and wealth management services. The bank has a presence in Oregon, Washington, California, Idaho, Nevada, Arizona, Colorado, and Utah.

The company's commercial banking segment offers a range of commercial and industrial loans, commercial real estate loans, and construction and development loans. The retail banking segment provides deposit products, residential mortgage loans, and consumer loans. The wealth management segment offers trust and investment management services, financial planning, and private banking services.

Financials

In the latest quarter, Columbia Banking reported earnings per share (EPS) of $0.57, beating the Zacks Consensus Estimate of $0.53 per share. The company's revenue for the quarter came in at $472.15 million, missing the consensus estimate of $474.8 million.

The company's net interest margin (NIM) for the quarter was 3.56%, up from 3.52% in the previous quarter. The increase was driven by asset rate pricing more than offsetting a 6 basis point increase in interest-bearing liability costs. The company's cost of interest-bearing deposits was 2.97% for the quarter and 3% for the month of June.

The provision for credit losses was $32 million for the quarter, up from $17.1 million in the previous quarter. The increase was primarily due to changes in the economic assumptions and recalibration of the company's CECL calculation for non-homogeneous commercial loans and leases and residential development loans.

Total non-interest expense for the quarter was $279 million, down from $287.5 million in the previous quarter. The decrease was driven by lower FDIC assessments and other discretionary spending.

The company's total risk-based capital ratio was 12.1% at the end of the quarter, up from 12% in the previous quarter. The company's tangible common equity (TCE) ratio was 6.8% at the end of the quarter, up from 6.6% in the previous quarter.

Deposit and Loan Trends

The company's total deposits were $41.7 billion at the end of the quarter, up slightly from $41.6 billion in the previous quarter. The increase was due to growth in money market, time deposits, and interest-bearing demand accounts, partially offset by a decline in non-interest-bearing demand deposits.

The company's total loans and leases were $37.6 billion at the end of the quarter, up 2% on an annualized basis after adjusting for $95 million in targeted loan sales. The increase was driven by growth in commercial lines of credit and construction draws.

The company's loan pipeline remains steady, and the company is seeing growth across its core fee income categories, including treasury management, commercial card, merchant services, and international banking. The company's close rate on its Umpqua Smart leads, which use predictive analytics to help the company's teams capture additional business with its existing customer base, was up 22% between the first and second quarters.

Expense Management and Reinvestment

The company has made significant progress on its expense management initiatives, achieving $64 million in annualized net savings and $76 million in annualized gross savings year-to-date. The company expects to achieve its goal of $70 million in net savings and $82 million in gross savings by the end of the third quarter.

The company plans to reinvest a portion of these savings, approximately $12 million, into the business over the next 18 months. The reinvestments will be focused on people, facilities, technology, and other initiatives that the company believes will drive long-term revenue growth.

Outlook

The company expects its fourth-quarter operating expense run rate to be in the annualized range of $965 million to $985 million, excluding core deposit intangible (CDI) amortization. The company's net interest margin is expected to remain within the 3.45% to 3.60% range, with the potential for further improvement if the Federal Reserve cuts interest rates.

Risks and Challenges

Risks to the company's outlook include continued economic uncertainty, rising interest rates, and potential regulatory changes. The company's exposure to the commercial real estate and residential mortgage sectors could also be a source of risk if economic conditions deteriorate.

Conclusion

Columbia Banking System, Inc. is a well-diversified financial institution with a strong presence in the western United States. The company has made significant progress on its expense management initiatives, which have enabled it to reinvest in the business and position it for long-term success. While the company faces some near-term headwinds, its focus on relationship banking, core fee income growth, and prudent risk management suggest that it is well-positioned to navigate the current environment and deliver value to shareholders over the long term.