Columbia Banking System, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This annual filing reports full-year results; it does not provide a separate, clearly identifiable fourth-quarter income statement. Columbia is a West Coast regional community bank holding company with Columbia State Bank as its principal subsidiary, serving Washington, Oregon, Idaho and California through 152 branches.
Key Financial Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net interest income | $622.8 million | $527.5 million | +18% |
| Noninterest income | $99.1 million | $94.1 million | +5% |
| Noninterest expense | $402.4 million | $360.3 million | +12% |
| Provision for credit losses | $2.0 million | $4.8 million | Down $2.9 million |
| Net income | $250.2 million | $202.8 million | +23% |
| Diluted EPS | $3.20 | $2.78 | +15% |
| Net interest margin, tax-equivalent | 3.34% | 3.17% | +17 basis points |
| Total assets | $20.27 billion | $20.95 billion | -3% |
| Total loans, before ACL | $11.61 billion | $10.64 billion | +9% |
| Total deposits | $16.71 billion | $18.01 billion | -7% |
| FHLB advances | $954.3 million | $7.4 million | Significant increase |
Profitability and Margins
- Interest income increased to $646.5 million, primarily from higher loan balances and yields amid rising interest rates.
- Interest expense increased to $23.6 million from $8.5 million as deposit costs rose and the Company used more FHLB funding.
- Income before taxes was $317.6 million, compared with $256.5 million in 2021. The effective tax rate was approximately 21%.
- Noninterest income benefited from higher deposit and treasury-management fees, card revenue, financial-services and trust revenue, and a $3.7 million sale-leaseback gain. Mortgage banking revenue declined.
- Noninterest expenses included $19.1 million of merger-related costs, including $13.5 million related to the pending Umpqua transaction.
Cash Flow, Liquidity and Debt
- Net cash provided by operating activities was $300.7 million. Investing activities used $395.7 million, primarily because net loan originations exceeded principal repayments and securities activity. Financing activities used $438.0 million, primarily due to a $1.30 billion decline in deposits, partly offset by increased FHLB borrowings.
- Cash and cash equivalents declined 65% to $291.7 million from $824.7 million at year-end 2021.
- The Company had unused credit lines of approximately $1.92 billion with the FHLB and $198.8 million with the Federal Reserve at December 31, 2022.
- FHLB advances increased by approximately $947.0 million to $954.3 million. Other borrowings included $95.2 million of repurchase agreements, $10.0 million of subordinated debentures and $10.3 million of junior subordinated debentures.
- Approximately $7.19 billion of deposits were estimated to be uninsured. The Company also had $3.91 billion of unfunded loan commitments and $33.2 million of standby letters of credit.
Asset Quality and Capital
- The allowance for credit losses increased to $158.4 million, but declined to 1.36% of loans from 1.46% in 2021. Net loan recoveries were $0.9 million in 2022, compared with $1.0 million of net charge-offs in 2021.
- Nonaccrual loans declined to $13.4 million, or 0.12% of loans, from $23.0 million, or 0.22%, in 2021. Nonperforming assets declined to $23.4 million, or 0.11% of assets.
- Commercial real estate and commercial business loans were the largest portfolio categories. Approximately 64% of gross loans were secured by real estate.
- The Company and Bank remained well-capitalized. Company ratios included a 12.87% CET1 ratio, 13.98% total risk-based capital ratio and 9.34% leverage ratio. Bank ratios were 12.93%, 13.97% and 9.47%, respectively.
- Shareholders’ equity declined to $2.21 billion from $2.59 billion, primarily because of after-tax unrealized losses in the available-for-sale securities portfolio. Gross unrealized losses on available-for-sale debt securities were $694.3 million.
Material Changes Versus 2021
- Earnings improved substantially, driven by stronger net interest income, higher loan balances and higher asset yields.
- Deposits contracted by $1.30 billion, while FHLB advances increased by $947.0 million, indicating a meaningful shift toward wholesale funding.
- Loans grew by $969.0 million, while total assets declined because cash and securities balances fell.
- Credit metrics improved, with lower nonaccrual loans, nonperforming assets and net charge-offs; however, the loan portfolio remained concentrated in commercial real estate and commercial business lending.
- Accumulated other comprehensive income declined by $545.7 million in 2022, primarily from securities valuation losses, resulting in a reported comprehensive loss of $295.5 million despite net income of $250.2 million.
- Noninterest expense increased $42.1 million, reflecting higher compensation, occupancy, data-processing, regulatory and merger-related costs.
Guidance, Outlook, Risks and Unusual Items
- The Company expected to close its merger with Umpqua after the close of business on February 28, 2023. Shareholder and regulatory approvals had been obtained, and the termination date was extended to March 11, 2023.
- The transaction is subject to integration, cost-savings realization, employee and customer retention, deposit attrition, execution costs and other closing risks. Under specified circumstances, termination could require Columbia to pay Umpqua a $145 million fee.
- In January 2023, Columbia completed the divestiture of three branches and related deposits and loans. It recorded a $3.7 million gain and was required to complete an additional divestiture of seven branches in connection with the merger.
- Management identified rising interest rates, inflation, potential recession, deposit pricing pressure, liquidity, commercial real estate concentrations, securities valuation losses, credit losses, cybersecurity, regulatory changes and natural disasters as significant risks.
- Management expects the transition from LIBOR to SOFR to require additional work and potentially increase litigation risk, although it did not anticipate a material financial statement impact.
- The Company’s ACL estimate is highly judgmental and uses an 18-month economic forecast, probability-of-default models and qualitative adjustments. A hypothetical 100-basis-point increase in unemployment would increase the quantitative ACL estimate by approximately $2.9 million.
- Management reported no goodwill impairment, no material unresolved staff comments and no material effect from pending legal proceedings. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether the Umpqua merger closed as expected, the final transaction terms, branch divestitures, integration costs and realized synergies.
- Subsequent trends in deposits, uninsured deposits, FHLB borrowings, liquidity availability and funding costs.
- Commercial real estate exposure, loan concentration, delinquency and nonaccrual trends, collateral values and future ACL requirements.
- Whether the $694.3 million of unrealized available-for-sale securities losses remain recoverable without forced sales or additional earnings impact.
- The effect of rising rates, deposit repricing and the changed funding mix on net interest income and net interest margin.
- Post-merger capital ratios, tangible common equity, goodwill and any acquisition-related fair-value adjustments or impairment risk.
- The impact of LIBOR-to-SOFR conversion on loans, subordinated debt, derivatives, pricing and customer contracts.