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COLUMBIA BANKING SYSTEM, INC. REPORTS THIRD QUARTER 2023 RESULTS
$0.65						$0.79						$22.21						$14.22
Earnings per diluted common share						Operating earnings per diluted common share 1						Book value per common share						Tangible book value per common share 1

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CEO Commentary
"Our teams remain focused on their customers and communities as we continue to drive balanced growth for the organization,” said Clint Stein, President and CEO. “We are back to business as usual, and our third quarter results highlight stabilizing customer deposit trends, relationship-driven growth in our loan portfolio and customer-based fee income, and a smaller impact from merger-related expense that affect our reported results. We achieved $140 million in annualized net merger-related cost savings through quarter end, surpassing our originally announced target of $135 million despite continued investment in our growing franchise, which includes the opening of our first branch in Utah during the third quarter. Our talented associates, expanding footprint, and customer-focused business model enable us to continue to win business and drive shareholder value.”
–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") has completed substantially all integration priorities, driving the realization of $140 million in annualized net merger-related cost-savings as of September 30, 2023, outpacing the $135 million target communicated when the combination was announced. Further, Umpqua Bank, the primary subsidiary of Columbia, continued to expand its presence in Utah with the opening of its first branch in the state during 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, second, and third quarters of 2023 and the nine months ended September 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 $481 million for the third quarter of 2023, down $3 million from the prior quarter. The slight decline reflects higher interest income given expanded earning asset yields that were more than offset by higher funding costs.

Columbia's net interest margin was 3.91% for the third quarter of 2023, down 2 basis points from 3.93% for the second quarter of 2023. The second full quarter as a combined organization, higher customer balances, and consistent purchase accounting trends contributed to net interest margin stabilization between quarters. The cost of interest-bearing deposits increased 37 basis points on a linked-quarter basis to 2.01% for the third quarter of 2023, which compares to 2.18% for the month of September and 2.27% at September 30, 2023. Deposit costs were impacted by the decision to replace a portion of maturing FHLB advances with brokered deposits during the third quarter, which increased our cost of deposits but was fairly neutral to our cost of interest-bearing liabilities. Columbia's cost of interest-bearing liabilities increased 27 basis points on a linked-quarter basis to 2.72% for the third quarter of 2023, which compares to 2.77% for the month of September and 2.78% at September 30, 2023. Please refer to the Q3 2023 Earnings Presentation for additional net interest margin change details and interest rate sensitivity information as well as to 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 $44 million for the third quarter of 2023, up $4 million from the prior quarter. Higher customer-related fee income, loan gain-on-sale income from select portfolio sales, and a smaller loss related to fair value adjustments and mortgage servicing rights ("MSR") hedging activity drove the increase. A net fair value loss of $15 million in the third quarter compares to a net fair value loss of $16 million in the second quarter, as detailed in our non-GAAP disclosures. As previously communicated, Columbia entered an agreement to sell approximately one-third of its MSR portfolio that relates to a non-relationship component of the serviced loan portfolio. The transaction closed in late September without any income statement impact.

Non-interest expense was $304 million for the third quarter of 2023, down $24 million from the prior quarter level. The decrease reflects the realization of cost savings as well as an $11 million decline in merger-related expense, which were $19 million in the third quarter. Please refer to the Q3 2023 Earnings Presentation for additional expense details, including an update on realized merger-related cost-savings through September 30, 2023.

Total consolidated assets were $52.0 billion as of September 30, 2023, compared to $53.6 billion as of June 30, 2023. Cash and cash equivalents was $2.4 billion as of September 30, 2023, a decrease of $1.0 billion relative to June 30, 2023. We reduced our cash position during the third quarter given stabilizing industry trends and ample sources of available liquidity. Excess cash was used to pay off maturing FHLB advances, which declined to $4.0 billion as of September 30, 2023, compared to $6.3 billion as of June 30, 2023. Including secured off-balance sheet lines of credit, total available liquidity was $19.1 billion as of September 30, 2023, representing 37% of total assets, 46% of total deposits, and 142% of uninsured deposits. Please refer to the Q3 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 $8.5 billion as of September 30, 2023, a decrease of $494 million relative to June 30, 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 Q3 2023 Earnings Presentation for additional details related to our securities portfolio.

Gross loans and leases were $37.2 billion as of September 30, 2023, an increase of $121 million relative to June 30, 2023, as organic growth during the quarter more than offset the sale of $159 million in non-relationship jumbo residential mortgage loans that were marked to fair value at merger close. "We continued to selectively prune the portfolio during the third quarter, bringing the transfer and sale of loans that were transactional in nature to approximately $650 million over the past two quarters," commented Tory Nixon, President of Umpqua Bank. "Higher outstanding commercial line balances and other relationship-driven expansion contributed to 3% annualized loan growth in the third quarter when loan sales are excluded." Please refer to the Q3 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 $41.6 billion as of September 30, 2023, an increase of $789 million relative to June 30, 2023. "Customer deposit balances stabilized during the third quarter, increasing slightly between September and June," stated Mr. Nixon. "While market liquidity tightening, the impact of inflation on customer spending, and businesses' use of cash continue to impact our deposit flows, our teams' focus on balancing deposit generation alongside other growth resulted in net deposit increases throughout many business lines." Please refer to the Q3 2023 Earnings Presentation for additional details related to deposit characteristics and flows.

The allowance for credit losses was $438 million, or 1.18% of loans and leases, as of September 30, 2023, compared to $424 million, or 1.15% of loans and leases, as of June 30, 2023. The provision for credit losses was $37 million for the third quarter of 2023 and reflects portfolio mix changes and credit migration trends. Please refer to the Q3 2023 Earnings Presentation for additional details related to the allowance for credit losses and other credit trends.

Net charge-offs were 0.25% of average loans and leases (annualized) for the third quarter of 2023, compared to 0.30% for the second quarter of 2023. Net charge-off activity continued to be centered in the FinPac portfolio, which experienced a decline in charge-offs. Bank charge-off activity remained low at 0.01% of average bank loans. As of September 30, 2023, non-performing assets were $106 million, or 0.20% of total assets, compared to $80 million, or 0.15% as of June 30, 2023.

As of September 30, 2023, Columbia's book value per common share decreased to $22.21, compared to $23.16 at June 30, 2023. The linked-quarter change in book value primarily reflects a change in accumulated other comprehensive (loss) income ("AOCI") to $(680) million at September 30, 2023, compared to $(419) million at the prior quarter-end. The change in AOCI is due primarily to an increase in the tax-effected net unrealized loss on available for sale securities to $650 million as of September 30, 2023, compared to $403 million as of June 30, 2023. Tangible book value per common share3 decreased to $14.22, compared to $15.02 at June 30, 2023.

Columbia's estimated total risk-based capital ratio was 11.5% and its estimated common equity tier 1 risk-based capital ratio was 9.4% as of September 30, 2023, compared to 11.3% and 9.2%, respectively, at June 30, 2023. Columbia remains above current “well-capitalized” regulatory minimums. "We continued to build capital during the quarter through organic earnings generation and the realization of loan and investment securities discount accretion," stated Ron Farnsworth, Chief Financial Officer of Columbia. "We expect our capital position to continue to build over time, supporting our growing franchise and increasing flexibility for capital return." The regulatory capital ratios as of September 30, 2023 are estimates, pending completion and filing of Columbia's regulatory reports.

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

Columbia's Q3 2023 Earnings Presentation provides additional disclosure. A copy will be available on our investor relations page: www.columbiabankingsystem.com.

Columbia will host its third quarter 2023 earnings conference call on October 18, 2023, at 2:00 p.m. PT (5:00 p.m. ET). During the call, Columbia's management will provide an update on recent activities and discuss its third 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/BIcd18f9ce2ec34fdf915aa619af3a3d01

Join the audiocast: https://edge.media-server.com/mmc/p/ih23hqkg/

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

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 and 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)
						Nine Months Ended												% Change
($ in thousands, except per share data)						Sep 30, 2023						Sep 30, 2022						Year over Year
Interest income:
Loans and leases						$	1,535,874					$	727,908					111		%
Interest and dividends on investments:
Taxable						198,831						54,156						267		%
Exempt from federal income tax						17,143						4,063						322		%
Dividends						8,241						256						nm
Temporary investments and interest bearing deposits						87,604						9,387						nm
Total interest income						1,847,693						795,770						132		%
Interest expense:
Deposits						290,995						17,021						nm
Securities sold under agreement to repurchase and federal funds purchased						2,697						674						300		%
Borrowings						186,848						897						nm
Junior and other subordinated debentures						27,605						12,641						118		%
Total interest expense						508,145						31,233						nm
Net interest income						1,339,548						764,537						75		%
Provision for credit losses						158,290						51,068						210		%
Non-interest income:
Service charges on deposits						48,176						36,226						33		%
Card-based fees						40,670						28,353						43		%
Brokerage revenue						10,460						65						nm
Residential mortgage banking revenue, net						12,577						108,671						(88)		%
Gain on sale of debt securities, net						4						2						100		%
Loss on equity securities, net						(336)						(7,383)						(95)		%
Gain on loan and lease sales, net						3,253						5,165						(37)		%
BOLI income						11,293						6,220						82		%
Other income (loss)						12,297						(12,670)						nm
Total non-interest income						138,394						164,649						(16)		%
Non-interest expense:
Salaries and employee benefits						458,531						333,244						38		%
Occupancy and equipment, net						135,320						104,430						30		%
Intangible amortization						78,092						3,076						nm
FDIC assessments						28,892						10,477						176		%
Merger related expense						164,485						5,719						nm
Other expenses						110,204						83,022						33		%
Total non-interest expense						975,524						539,968						81		%
Income before provision for income taxes						344,128						338,150						2		%
Provision for income taxes						88,944						84,362						5		%
Net income						$	255,184					$	253,788					1		%
Weighted average basic shares outstanding (1)						190,997						129,262						48		%
Weighted average diluted shares outstanding (1)						191,546						129,702						48		%
Earnings per common share – basic (1)						$	1.34					$	1.96					(32)		%
Earnings per common share – diluted (1)						$	1.33					$	1.96					(32)		%
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) 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 $700,000, $1.6 million, $5.4 million, $6.6 million and $1.0 million at September 30, 2023, June 30, 2023, March 31, 2023, December 31, 2022 and September 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.