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Earnings Call Transcripts·

Columbia Banking System 3rd Quarter 2026 Earnings Call - Columbia Banking System

CLBK

  • Financial Performance:

    • Reported EPS of $0.78 and operating EPS of $0.82 for Q3 2026.
    • Operating pre-provision net revenue (PPNR) increased 7% sequentially and 25% year-over-year; operating net income rose 6% sequentially and 12% year-over-year.
    • Net interest margin (NIM) reached 4.11% for the quarter, driven by a favorable mix shift and balance sheet optimization, excluding one-time items.
    • Average earning assets totaled $59.8 billion, showing modest contraction due to CRE payoffs and active balance sheet management.
    • Non-interest income was $87 million on an operating basis, reflecting strong momentum in fee businesses.
    • Operating non-interest expense was $365 million, with guidance for Q4 falling to $330–$335 million after excluding CDI amortization.
    • Provision expense was $33 million, reflecting loan runoff and updated economic forecasts.
    • Return on average assets (ROAA) was 1.4%, and return on tangible common equity (ROTCE) exceeded 17%.
    • Capital ratios included a CET1 ratio of 11.5% and a total risk-based capital ratio of 13.8%.

  • Guidance and Future Outlook:

    • Guided Q4 NIM to approximately 4.05%, anticipating a modest headwind from carrying excess subordinated debt during the quarter.
    • Excluding unusual items, management expects NIM to remain above 4.0% in the coming quarters, with potential to expand further into 2027 as lower-yielding assets are replaced.
    • Projected non-interest income for Q4 to remain in the mid-$80 million range.
    • Anticipates loan balances to remain flat to slightly down through Q4 and Q1 2027, with C&I growth expected in the low-to-mid single digits.
    • Forecasts 2027 expense growth to align with inflation (approximately 2%), maintaining cost discipline while reinvesting in growth.
    • New $1.2 billion share repurchase authorization approved; expect Q4 buyback spend of $150–$200 million.

  • Business Segments and Product Lines:

    • Commercial loans, including owner-occupied CRE, comprised 43% of the portfolio, shifting away from transactional loans toward relationship-based lending.
    • Loan origination volume was $1.2 billion in Q3, with nearly 70% attributed to commercial loans.
    • Total deposits grew to $52.7 billion, driven by a $1.2 billion increase in customer deposits and a strategic reduction in wholesale/brokered funding.
    • Fee income momentum is evident in treasury management (+7% YoY), international banking (+19% YoY), commercial cards (+23% YoY), and merchant cards (+11% YoY).
    • Wealth management is emerging as a significant non-interest income contributor, with private trust assets added post-acquisition.
    • Physical footprint optimization continued with the closure of four branches in established markets and the opening of new locations in Utah (branch and financial hub) and Las Vegas.
    • The Pacific Premier integration is described as "smooth," with Southern California deposit growth largely stemming from legacy PPP customers.

  • Market and Competitive Landscape:

    • Maintains a 10% market share in Washington, Oregon, and Idaho, with ongoing efforts to gain share in Western markets.
    • Management reports "irrational competition" in the commercial real estate and real estate front, characterized by non-recourse structures and excessive leverage, which the bank avoids.
    • Operating environment remains resilient despite a "higher for longer" interest rate environment, allowing the bank to maintain pricing discipline.
    • Strong competitive positioning in relationship banking, with bankers focusing on full commercial relationships rather than single-product transactions.
    • The bank continues to outperform peers in holding deposit costs steady (1.95% cost of interest-bearing deposits) despite rate hikes.

  • Risks and Challenges:

    • Economic forecast changes and potential interest rate increases into 2027 may pressure certain real estate and borrower sectors, necessitating a slight reserve build.
    • Seasonal deposit outflows expected in the second half of Q4 could negatively impact NIM.
    • Carrying excess subordinated debt through year-end creates a temporary negative carry headwind for Q4.
    • Regulatory capital impacts from Basel III proposed rulemaking are being monitored, though no relief is currently counted in plans.
    • Integration of legacy organizations (Umpqua, Pacific Premier) requires ongoing optimization of processes and technology to eliminate inefficiencies.

  • Management Commentary and Tone:

    • Tone is confident, disciplined, and focused on long-term sustainability, highlighting "consistent, repeatable performance."
    • Management emphasizes that their strategy relies on relationship banking rather than technology alone, stating "customers choose Columbia because of the bankers who know them."
    • There is strong confidence in the balance sheet's neutral positioning to interest rate fluctuations, providing earnings insulation.
    • CEO Clint Stein noted that the Pacific Premier acquisition was the "missing piece" to their envisioned franchise and expressed high confidence in future capital generation.
    • Management highlighted a "fortress balance sheet" and diversified loan portfolio as key drivers of resilience.

  • Analyst Questions and Answers:

    • Margin Trajectory: Analysts questioned the Q4 NIM guidance; management clarified that the 4.05% figure includes temporary headwinds from sub-debt timing and seasonal deposit outflows, with a long-term expectation of low-4% NIM expansion.
    • Capital Returns: Regarding the new $1.2 billion buyback, management confirmed no time-bound cap (unlike the prior 12-month program) and affirmed comfort with capital generation to support repurchases and dividends.
    • Deposit Strategy: Questions on deposit growth drivers were answered as a combination of seasonal strength, commercial banker activity, and successful integration of Pacific Premier clients; CD replacement rates are expected to remain above 80%.
    • Expense Efficiency: Management explained that expense reductions are achieved through identified synergies (exceeding the $127M target) and automation, allowing reinvestment in strategic areas like commercial banking in Utah, Arizona, and wealth management.
    • Loan Growth: Management reiterated that loan balance contraction is primarily driven by the deliberate runoff of the transactional portfolio, which offsets organic C&I growth; positive growth is not expected until mid-2027.

  • Other Key Points:

    • Completed a $250 million issuance of subordinated notes in Q3 to optimize the capital stack and fund the redemption of approximately $240 million in trust preferred securities by early 2027.
    • Tangible book value declined to $18.10 due to unrealized losses (OCI) from rising interest rates, though management views this as a temporary market fluctuation.
    • Technology investments are focused on removing friction and enhancing banker productivity, not replacing human relationships.
    • The bank closed out its prior share repurchase authorization in August, having reduced the share count by 8% over the program's life.