Columbia Banking System, Inc. — FY2023 Form 10-K Summary
Business context and reporting period
Columbia Banking System, Inc. is a financial holding company headquartered in Tacoma, Washington. Through Umpqua Bank and Financial Pacific Leasing, it provides commercial, consumer, mortgage, wealth management, treasury management, and equipment-leasing services across eight western states.
This filing covers the fiscal year ended December 31, 2023. Columbia completed its all-stock merger with Umpqua Holdings Corporation on February 28, 2023, followed by the merger of Columbia State Bank into Umpqua Bank. The core systems conversion was completed in March 2023, and branch consolidations occurred through the second quarter. Because the transaction was accounted for as a reverse acquisition, pre-merger periods primarily reflect standalone Umpqua results and are not directly comparable to the combined company.
Key financial metrics
| Metric | FY2023 / Dec. 31, 2023 | Prior comparable period |
|---|---|---|
| Net income | $348.7 million | $336.8 million in FY2022 |
| Diluted EPS | $1.78 | $2.60 in FY2022 |
| Net interest income | $1.79 billion | $1.07 billion in FY2022 |
| Tax-equivalent net interest margin | 3.91% | 3.62% in FY2022 |
| Non-interest income | $203.9 million | $199.5 million in FY2022 |
| Non-interest expense | $1.31 billion | $735.0 million in FY2022 |
| Provision for credit losses | $213.2 million | $84.0 million in FY2022 |
| Total assets | $52.2 billion | $31.8 billion at year-end 2022 |
| Gross loans and leases | $37.4 billion | $26.2 billion at year-end 2022 |
| Total deposits | $41.6 billion | $27.1 billion at year-end 2022 |
| Cash and cash equivalents | $2.16 billion | $1.29 billion at year-end 2022 |
| Shareholders’ equity | $5.0 billion | $2.5 billion at year-end 2022 |
| Return on average assets | 0.70% | 1.09% in FY2022 |
| Return on average common equity | 7.81% | 13.07% in FY2022 |
Net income increased modestly despite significantly higher expenses and credit provisions. Net interest income benefited from the larger post-merger balance sheet, higher loan yields, higher market rates, and $253.6 million of purchase-accounting accretion and amortization. These benefits were partly offset by rapidly increasing deposit and borrowing costs.
Operating cash flow was $669.8 million, compared with $1.07 billion in FY2022. Investing activities generated $501.7 million, primarily reflecting securities activity, loan sales, and cash received in the merger. Financing activities used $303.7 million, including dividends and net deposit outflows despite substantial borrowing activity.
Material changes versus the prior period
- The merger added approximately $19.2 billion of assets, $10.9 billion of loans measured at fair value, and $15.2 billion of deposits.
- Total assets increased 64% to $52.2 billion; loans and leases increased 43% to $37.4 billion; and deposits increased 54% to $41.6 billion.
- Non-interest expense increased 79% to $1.31 billion, including $171.7 million of merger-related expenses, $111.3 million of intangible amortization, and $71.4 million of FDIC assessments.
- Merger-related cost savings reached an annualized $143 million at year-end, exceeding the original $135 million target. Management expects merger-related expenses to decline in 2024 as systems integration was completed in 2023.
- Residential mortgage banking revenue fell to $16.8 million from $106.9 million. For-sale mortgage volume declined 76%, and the mortgage servicing rights asset decreased to $109.2 million from $185.0 million after valuation changes and the sale of approximately one-third of the MSR portfolio.
- Net interest margin declined from 3.93% in August 2023 to 3.63% in December 2023 as funding costs increased faster than earning-asset yields. Approximately $6.0 billion of time deposits, including $2.6 billion of brokered time deposits, mature in 2024.
Credit quality, liquidity, debt, and capital
- Non-performing assets increased to $113.9 million, or 0.22% of assets, from $58.8 million, or 0.18%. Non-performing loans increased to $112.9 million, or 0.30% of loans.
- The allowance for credit losses increased to $464.1 million, or 1.24% of loans and leases, from $315.4 million, or 1.21%. Net charge-offs rose to $96.7 million, or 0.27% of average loans, from $30.9 million, or 0.13%.
- Commercial real estate loans totaled $19.5 billion, or approximately 52% of total loans. Real estate-related loans represented approximately 75% of the loan portfolio; multifamily represented approximately 19% and office loans approximately 8%.
- Total available liquidity was $18.7 billion, equal to approximately 36% of assets, 45% of deposits, and 138% of estimated uninsured deposits.
- Borrowings totaled $4.0 billion, consisting primarily of $3.8 billion of FHLB advances and $200 million of Federal Reserve Bank Term Funding Program borrowings. All such borrowings mature in 2024. New BTFP advances were scheduled to end in March 2024.
- Estimated uninsured deposits were $13.5 billion, or 32% of total deposits. Brokered deposits increased to $3.1 billion, or 8% of deposits, from $866.9 million, or 3%.
- The Company and Bank remained well-capitalized. Company CET1, total risk-based capital, and leverage ratios were 9.64%, 11.86%, and 7.60%, respectively; the Bank’s corresponding ratios were 10.52%, 11.57%, and 8.30%.
- The Company paid $1.43 per common share in dividends during 2023. Future dividends remain subject to earnings, capital, liquidity, and regulatory restrictions. The Bank currently requires FDIC and Oregon regulatory approval for dividends to the parent.
Guidance, outlook, management commentary, risks, and unusual items
- Management expects additional funding-cost pressure in 2024 because of deposit repricing, migration toward higher-cost funding, and scheduled maturities of time and brokered deposits.
- Mortgage banking revenue is expected to remain lower in 2024, consistent with the reduced fourth-quarter 2023 run rate and smaller serviced-loan portfolio.
- Management believes the ACL was adequate at year-end but acknowledges that weaker economic conditions, changes in forecasts, loan growth, credit migration, or collateral values could require additional provisions.
- The primary credit risks are commercial real estate, commercial lending, and the trucking and transportation portion of the leasing portfolio. Office-related exposure is particularly sensitive to interest rates, refinancing conditions, occupancy, and property values.
- The securities portfolio had $488.1 million of gross unrealized losses, primarily from interest-rate and spread changes rather than issuer credit deterioration. Management recorded no ACL on these securities at year-end.
- The FDIC special assessment related to the failures of Silicon Valley Bank and Signature Bank resulted in a $32.9 million fourth-quarter 2023 expense. The FDIC will collect the assessment over eight quarterly periods beginning in 2024.
- Umpqua Bank disclosed a MOVEit vendor incident involving names and Social Security numbers or tax identification numbers of 429,252 consumer and small-business customers. Multiple lawsuits and a multidistrict proceeding are pending; the ultimate cost and outcome cannot be determined. The Company had $5.7 million accrued for legal matters at year-end.
- The Company also faces litigation related to the Professional Financial Investors investment-fund failures. Plaintiffs have estimated class damages of $386.2 million to $429.8 million before prior bankruptcy recoveries, although management believes it has meritorious defenses.
- Interest-rate sensitivity analysis indicated modest first-year net-interest-income sensitivity to parallel rate changes, but economic value of equity was liability-sensitive: a 300-basis-point instantaneous increase in rates was estimated to reduce economic value by 21.9%.
- The annual goodwill impairment test identified no impairment, but the Company carries $1.0 billion of merger-related goodwill and $603.7 million of other intangible assets, making valuation assumptions and future operating performance important.
Most important facts for investors to verify
- Whether deposit retention and pricing stabilize as approximately $6.0 billion of time deposits mature in 2024, including $2.6 billion of brokered time deposits.
- Whether net interest margin continues to contract as funding costs reprice and wholesale funding remains elevated.
- Trends in commercial real estate, office, multifamily, and transportation-related credit quality, charge-offs, non-performing assets, and ACL coverage.
- Whether management sustains the reported $143 million of annualized merger savings while avoiding revenue attrition and integration-related disruptions.
- The impact of the FDIC special assessment, merger-related costs, intangible amortization, and purchase-accounting accretion on normalized earnings.
- The liquidity implications of maturing FHLB and Federal Reserve borrowings, the scheduled end of new BTFP advances, and the level of uninsured and brokered deposits.
- The financial and reputational consequences of the MOVEit litigation and the Professional Financial Investors proceedings.
- The potential effect of unrealized securities losses, goodwill, and other intangible assets on tangible capital and future earnings.