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COLUMBIA BANKING SYSTEM, INC. REPORTS SECOND QUARTER 2023 RESULTS
$0.64						$0.81						$23.16						$15.02
Earnings per diluted common share						Operating earnings per diluted common share 1						Book value per common share						Tangible book value per common share 1

0

CEO Commentary
"Our teams continued to drive success during the second quarter, which was characterized by further integration progress and relationship-focused business activity,” said Clint Stein, President and CEO. “We successfully completed planned branch consolidations during the quarter, and though merger-related expenses continued to impact our reported results, we remain on track to achieve our guided cost-savings expectations by the end of the third quarter, with additional opportunities already identified. We are not immune to quantitative actions affecting industry deposit balances and contributing to the modest remix of our deposit base. However, our talented associates, service-driven operating model, and expansion in newer markets provide us with the opportunities and resources to retain our favorable placement within the industry.”
–Clint Stein, President and CEO of Columbia Banking System, Inc.

Jacquelynne "Jacque" Bohlen, SVP/Investor Relations Director, 503-727-4117, jacquebohlen@umpquabank.com

1 "Non-GAAP" financial measure. See GAAP to Non-GAAP Reconciliation for the comparable GAAP measurement.

2 Periods prior to February 28, 2023, have been restated as a result of the adjustment to common shares outstanding based on the exchange ratio from the UHC merger of 0.5958.

Columbia Banking System, Inc. ("Columbia", "we", or "our") completed the planned consolidation of 47 branches during the latter half of the second quarter. We remain on track to realize the previously communicated $135 million in annualized cost-savings expectations by the end of the third quarter.

On February 28, 2023, Columbia completed its merger with Umpqua Holdings Corporation ("UHC"), combining the two premier banks in the Northwest to create one of the largest banks headquartered in the West ("the merger"). Columbia's financial results for any periods ended prior to February 28, 2023 reflect UHC results only on a standalone basis. In addition, Columbia's reported financial results for the first quarter of 2023 reflect UHC financial results only until the closing of the merger after the close of business on February 28, 2023. As a result of these two factors, Columbia's financial results for the first and second quarters of 2023 and the six months ended June 30, 2023 may not be directly comparable to prior reported periods. The number of shares issued and outstanding, earnings per share, additional paid-in capital, and all references to share quantities or metrics of Columbia have been retrospectively restated to reflect the equivalent number of shares issued in the merger as the merger was treated as a reverse merger. Under the reverse acquisition method of accounting, the assets and liabilities of Columbia as of February 28, 2023 ("historical Columbia") were recorded at their respective fair values.

Net interest income was $484 million for the second quarter of 2023, up $109 million from the prior quarter. The increase, which includes $74 million of purchase accounting accretion and amortization compared to $32 million in the first quarter, reflects the benefit of a full quarter run rate as a combined organization, partially offset by higher funding costs related to deposit and liability mix shift and rising interest rates.

Columbia's net interest margin was 3.93% for the second quarter of 2023, down 15 basis points from 4.08% for the first quarter of 2023. Excluding purchase accounting accretion and amortization, the net interest margin was 3.32% for the second quarter of 2023 compared to 3.73% for the first quarter of 2023. The cost of interest-bearing deposits increased 32 basis points on a linked-quarter basis to 1.64% for the second quarter of 2023, which compares to 1.83% for both the month of June and at June 30, 2023. Please refer to the Q2 2023 Earnings Presentation for additional net interest margin change details and interest rate sensitivity information as well as our non-GAAP disclosures in this press release for the impact of purchase accounting accretion and amortization on individual line items.

Non-interest income was $40 million for the second quarter of 2023, down $15 million from the prior quarter. A $24 million unfavorable change in cumulative fair value adjustments and mortgage servicing rights ("MSR") hedging activity offset the benefit of the full quarter run rate as a combined organization. A net fair value loss of $16 million in the second quarter compares to a net fair value gain of $8 million in the first quarter, as detailed in our non-GAAP disclosures. The planned sale of approximately one-third of our MSR and the associated accounting treatment was the primary driver of the ineffectiveness of our MSR hedging activity during the second quarter. The transaction, which we expect to close at the end of the third quarter or beginning of the fourth quarter, relates to a non-relationship component of our serviced loan portfolio, and the transaction is expected to be accretive to capital given the impact to risk-weighted assets from the reduction in our MSR balance.

Non-interest expense was $329 million for the second quarter of 2023, down $14 million from the prior quarter level. The decrease reflects an $86 million decline in merger-related expenses, which were $30 million in the second quarter, and the realization of cost savings, with the impact partially offset by the full quarter run rate of the combined organization. Please refer to the Q2 2023 Earnings Presentation for additional expense details, including an update on realized merger-related cost-savings through June 30, 2023.

Total consolidated assets were $53.6 billion as of June 30, 2023, compared to $54.0 billion as of March 31, 2023. Cash and cash equivalents was $3.4 billion as of June 30, 2023, a decrease of $228 million relative to March 31, 2023. We continued to maintain a higher on-balance sheet level of liquidity during the second quarter. Including secured off-balance sheet lines of credit, total available liquidity was $18.1 billion as of June 30, 2023, representing 34% of total assets, 44% of total deposits, and 134% of uninsured deposits. Please refer to the Q2 2023 Earnings Presentation for additional details related to our liquidity position.

 

Available for sale securities, which are held on balance sheet at fair value, were $9.0 billion as of June 30, 2023, a decrease of $251 million relative to March 31, 2023, as paydowns and a decline in the fair value of the portfolio were only partially offset by accretion of the discount on historical Columbia securities. Please refer to the Q2 2023 Earnings Presentation for additional details related to our securities portfolio.

Gross loans and leases were $37.0 billion as of June 30, 2023, essentially unchanged from March 31, 2023, as net organic growth during the quarter was offset by the sale of $373 million in loans and the corresponding reclassification of $118 million in balances to loans held for sale. "We elected to sell approximately $500 million in loans that were transactional in nature during the quarter," commented Chris Merrywell, President of Umpqua Bank. "Our teams remain focused on generating balanced growth through existing and new customer relationships, which contributed to 5% annualized growth in the second quarter when loan sales and transfers are excluded." Please refer to the Q2 2023 Earnings Presentation for additional details related to our loan portfolio, which include underwriting characteristics, the composition of our commercial portfolios, and disclosure related to our office portfolio.

Total deposits were $40.8 billion as of June 30, 2023, a decrease of $751 million relative to March 31, 2023. "Our deposit balances continued to be affected by market liquidity tightening, the impact of inflation on customer spending, and commercial customers' deployment of cash, which includes tax payments," stated Mr. Merrywell. "Declining balances do not reflect customer attrition, and to date we have not experienced any adverse impact from the planned branch consolidations completed during the quarter given our teams' dedication to limiting any potential disruption to customers from the activity." Please refer to the Q2 2023 Earnings Presentation for additional details related to deposit characteristics and flows.

The allowance for credit losses was $424 million, or 1.15% of loans and leases, as of June 30, 2023, compared to $436 million, or 1.18% of loans and leases, as of March 31, 2023. The provision for credit losses was $16 million for the second quarter of 2023 and is reflective of stabilizing credit trends in the FinPac portfolio; changes between the February 2023 and May 2023 economic forecasts; and portfolio mix changes, which include the reserve release associated with loan sales completed during the quarter. Please refer to the Q2 2023 Earnings Presentation for additional details related to the allowance for credit losses and other credit trends.

Net charge-offs were 0.30% of average loans and leases (annualized) for the second quarter of 2023, compared to 0.23% for the first quarter of 2023. Net charge-off activity continued to be centered in the FinPac portfolio, which experienced an anticipated increase in charge-offs. Bank charge-off activity remained low at 0.03% of average bank loans. As of June 30, 2023, non-performing assets were $80 million, or 0.15% of total assets, compared to $76 million, or 0.14% as of March 31, 2023.

As of June 30, 2023, Columbia's book value per common share decreased to $23.16, compared to $23.44 at March 31, 2023. The linked-quarter change in book value primarily reflects a change in accumulated other comprehensive (loss) income ("AOCI") to $(419) million at June 30, 2023, compared to $(300) million at the prior quarter-end. The change in AOCI is due primarily to a reduction in the tax-effected net unrealized loss on available for sale securities to $403 million at June 30, 2023, compared to $295 million at March 31, 2023. Tangible book value per common share3 decreased to $15.02, compared to $15.12 at March 31, 2023.

Columbia's estimated total risk-based capital ratio was 11.1% and its estimated common equity tier 1 risk-based capital ratio was 9.1% as of June 30, 2023, compared to 10.9% and 8.9%, respectively, at March 31, 2023. Columbia remains above current “well-capitalized” regulatory minimums. "Our regulatory capital ratios expanded as anticipated during the second quarter, due in part to the realization of loan and investment securities discount accretion," stated Ron Farnsworth, Chief Financial Officer of Columbia. "We expect meaningful capital build over time to enhance future deployment opportunities." The regulatory capital ratios as of June 30, 2023 are estimates, pending completion and filing of Columbia's regulatory reports.

Columbia's Q2 2023 Earnings Presentation provides additional disclosure. A copy will be available on our investor relations page: www.columbiabankingsystem.com.

Columbia will host its second quarter 2023 earnings conference call on July 19, 2023, at 2:30 p.m. PT (5:30 p.m. ET). During the call, Columbia's management will provide an update on recent activities and discuss its second quarter 2023 financial results. Participants may register for the call using the below link to receive dial-in details and their own unique PINs or join the audiocast. It is recommended you join 10 minutes prior to the start time.

Register for the call: https://register.vevent.com/register/BIdd0fac4229134dff9718a687c2bb37fc

Join the audiocast: https://edge.media-server.com/mmc/p/9uf3dn2p

Access the replay through Columbia's investor relations page: www.columbiabankingsystem.com

3 "Non-GAAP" financial measure. See GAAP to Non-GAAP Reconciliation for the comparable GAAP measurement.

Columbia (Nasdaq: COLB) is headquartered in Tacoma, Washington and is the parent company of Umpqua Bank, an award-winning western U.S. regional bank based in Lake Oswego, Oregon. In March of 2023, Columbia and Umpqua combined two of the Pacific Northwest's premier financial institutions under the Umpqua Bank brand to create one of the largest banks headquartered in the West and a top-30 U.S. bank. With over $50 billion of assets, Umpqua Bank combines the resources, sophistication and expertise of a national bank with a commitment to deliver personalized service at scale. The bank operates in Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah, and Washington and supports consumers and businesses through a full suite of services, including retail and commercial banking; Small Business Administration lending; institutional and corporate banking; and equipment leasing. Umpqua Bank customers also have access to comprehensive investment and wealth management expertise as well as healthcare and private banking through Columbia Wealth Management and Columbia Trust Company, a subsidiary of Columbia. Learn more at www.columbiabankingsystem.com.

This press release includes forward-looking statements within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. These statements are necessarily subject to risk and uncertainty and actual results could differ materially due to various risk factors, including those set forth from time to time in our filings with the Securities and Exchange Commission (the "SEC"). You should not place undue reliance on forward-looking statements and we undertake no obligation to update any such statements. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," "target," "projects," "outlook," "forecast," "will," "may," "could," "should," "can" and similar references to future periods. In this press release we make forward-looking statements about strategic and growth initiatives and the result of such activity. Risks that could cause results to differ from forward-looking statements we make include, without limitation: current and future economic and market conditions, including the effects of declines in housing and commercial real estate prices, high unemployment rates, continued inflation and any recession or slowdown in economic growth particularly in the western United States; economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that could result in increased loan and lease losses, especially those risks associated with concentrations in real estate related loans; our ability to effectively manage problem credits; the impact of bank failures or adverse developments at or news developments concerning other banks on general investor sentiment regarding the liquidity stability of banks; changes in interest rates that could significantly reduce net interest income and negatively affect asset yields and valuations and funding sources; changes in the scope and cost of FDIC insurance and other coverage; our ability to successfully implement efficiency and operational excellence initiatives; our ability to successfully develop and market new products and technology; changes in laws or regulations; any failure to realize the anticipated benefits of the UHC merger when expected or at all; the possibility that the integration following the UHC merger may be more expensive than anticipated, including as a result of unexpected factors or events, diversion of management’s attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the UHC merger and integration of the companies; the effect of geopolitical instability, including wars, conflicts and terrorist attacks; and natural disasters and other similar unexpected events outside of our control. We also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of Columbia, market conditions, capital requirements, applicable law and regulations (including federal securities laws and federal banking regulations), and other factors deemed relevant by Columbia's Board of Directors, and may be subject to regulatory approval or conditions.

(1) Periods prior to February 28, 2023, have been restated as a result of the adjustment to common shares outstanding based on the exchange ratio from the UHC merger of 0.5958.

Columbia Banking System, Inc.
Consolidated Statements of Operations
(Unaudited)
						Six Months Ended												% Change
($ in thousands, except per share data)						Jun 30, 2023						Jun 30, 2022						Year over Year
Interest income:
Loans and leases						$	966,204					$	449,078					115		%
Interest and dividends on investments:
Taxable						118,765						35,981						230		%
Exempt from federal income tax						10,214						2,741						273		%
Dividends						3,300						170						nm
Temporary investments and interest bearing deposits						53,197						4,272						nm
Total interest income						1,151,680						492,242						134		%
Interest expense:
Deposits						164,021						7,931						nm
Securities sold under agreement to repurchase and federal funds purchased						1,477						129						nm
Borrowings						109,768						99						nm
Junior and other subordinated debentures						17,741						7,150						148		%
Total interest expense						293,007						15,309						nm
Net interest income						858,673						476,933						80		%
Provision for credit losses						121,553						23,496						417		%
Non-interest income:
Service charges on deposits						30,766						23,594						30		%
Card-based fees						24,996						19,238						30		%
Brokerage revenue						5,809						38						nm
Residential mortgage banking revenue, net						5,474						91,330						(94)		%
Gain on sale of debt securities, net						—						2						(100)		%
Gain (loss) on equity securities, net						1,719						(4,736)						nm
Gain on loan and lease sales, net						1,382						3,640						(62)		%
BOLI income						6,853						4,197						63		%
Other income (loss)						17,414						(2,099)						nm
Total non-interest income						94,413						135,204						(30)		%
Non-interest expense:
Salaries and employee benefits						299,490						224,080						34		%
Occupancy and equipment, net						92,250						69,388						33		%
Intangible amortization						48,213						2,051						nm
FDIC assessments						17,692						7,470						137		%
Merger related expenses						145,547						4,950						nm
Other expenses						68,185						54,065						26		%
Total non-interest expense						671,377						362,004						85		%
Income before provision for income taxes						160,156						226,637						(29)		%
Provision for income taxes						40,817						56,889						(28)		%
Net income						$	119,339					$	169,748					(30)		%
Weighted average basic shares outstanding (1)						182,325						129,233						41		%
Weighted average diluted shares outstanding (1)						182,860						129,685						41		%
Earnings per common share – basic (1)						$	0.65					$	1.31					(50)		%
Earnings per common share – diluted (1)						$	0.65					$	1.31					(50)		%
nm = not meaningful

(1) Periods prior to February 28, 2023, have been restated as a result of the adjustment to common shares outstanding based on the exchange ratio from the UHC merger of 0.5958.

(1) See GAAP to Non-GAAP Reconciliation.

(2) Periods prior to February 28, 2023, have been restated as a result of the adjustment to common shares outstanding based on the exchange ratio from the UHC merger of 0.5958.

(1) See GAAP to Non-GAAP Reconciliation.

(2) Tax exempt interest has been adjusted to a taxable equivalent basis using a 21% tax rate.

(3) Total funding = Total deposits + Total borrowings.

(4) Estimated holding company ratios.

(5) Periods prior to February 28, 2023, have been restated as a result of the adjustment to common shares outstanding based on the exchange ratio from the UHC merger of 0.5958.

(1) See GAAP to Non-GAAP Reconciliation.

(2) Tax exempt interest has been adjusted to a taxable equivalent basis using a 21% tax rate.

(3) Total funding = Total deposits + Total borrowings.

(4) Periods prior to February 28, 2023, have been restated as a result of the adjustment to common shares outstanding based on the exchange ratio from the UHC merger of 0.5958.

 

(1) Core deposits are defined as total deposits less time deposits greater than $250,000 and all brokered deposits.

(1) Excludes certain mortgage loans guaranteed by Ginnie Mae, which Columbia has the unilateral right to repurchase but has not done so, totaling $1.6 million, $5.4 million, $6.6 million, $1.0 million, and $356,000 at June 30, 2023, March 31, 2023, December 31, 2022, September 30, 2022, and June 30, 2022, respectively.

(1) For the quarter ended March 31, 2023, the provision for credit losses on loans and leases includes $88.4 million initial provision related to non-PCD loans acquired during the period.