COLUMBIA BANKING SYSTEM, INC. 10-Kyear ended 2025-12-31

Executive Summary

Columbia Banking System’s acquisition of Pacific Premier transformed its scale and Southern California presence in 2025, but the acquired business contributed only four months of results, so growth is not fully comparable with 2024. Net interest income and deposits rose, while merger costs, a legal settlement, and acquisition-related share issuance left diluted earnings per share lower despite higher net income. Capital and contingent liquidity provide capacity to complete the integration, but investors should judge the deal by whether promised savings reach earnings without deposit attrition or deterioration in the enlarged real-estate loan portfolio.

Key Financial Highlights

• Net interest income: $2.00B, up 17%; tax-equivalent net interest margin rose to 3.83% from 3.57% as interest-bearing funding costs fell faster than average loan yields. Non-interest income rose 41% to $298M, partly helped by a $16M net fair-value gain vs a $13M loss.
• Non-interest expense: $1.42B, up 29%, including $148M of merger and restructuring expense and a $55M class-action settlement accrual. These costs obscured how much recurring expense efficiency the combined bank has achieved.
• Credit: The $150M provision included $75M tied to initial allowances for acquired loans and commitments. Net charge-offs improved to $111M from $129M, but the allowance-to-loans ratio fell to 1.02% from 1.17% as the acquired portfolio expanded.
• Capital return and dilution: Cash spent on repurchases was $109M, yet shares outstanding increased by 85.9M to 295M after 87.6M acquisition shares were issued. Dividends declared were $1.45 per share; consolidated common equity Tier 1 capital rose to 11.80% from 10.5%.

Business Developments

The all-stock Pacific Premier acquisition closed on 8/31/2025, adding $11.4B of loans, $14.5B of deposits, and $2.8B of securities. It deepened Columbia’s Southern California business and extended its market area into Texas through homeowner-association banking; the unified Columbia Bank name took effect on 9/1/2025. Management expects systems conversion and branch consolidation in Q1 2026 and full cost savings by 6/30/2026, against expected merger-related expenses of $185M. This makes 2026 the test of whether greater scale produces durable earnings rather than primarily a larger balance sheet.

The acquired mix also increased real-estate exposure: real-estate-secured loans represented 76% of gross loans, and multifamily loans, including construction, rose to 24% of the portfolio from 19%. Core deposits reached $50.2B, while brokered deposits declined to 4% of total deposits from 7%, supporting management’s relationship-led funding strategy. Homeowner-association banking is expected to add ≈$10M of quarterly third-party deposit costs when reflected for a full year in 2026.

Risk Assessment

• Integration and execution: Delayed systems conversion, customer attrition, or higher costs could erode acquisition benefits; the workforce grew 27% to 6,005 employees.
• Real-estate credit: Commercial real estate loans totaled $27.9B, including $3.62B of office loans; weaker property cash flows or refinancing conditions could require larger provisions. A severe modeled economic scenario put quantitative lifetime losses $147M above the period-end modeled allowance before qualitative adjustments.
• Funding and parent-company liquidity: Estimated uninsured deposits were $19.8B, or 36% of deposits; $6.5B of time deposits and $3.2B of Federal Home Loan Bank advances mature in 2026. Available liquidity was $27.9B, but the Bank’s accumulated deficit means its dividends to the parent require regulatory approval.
• Interest rates and securities: The year-end balance sheet was liability-sensitive: a modeled 300-bp rate decline raises first-year net interest income 5.3% but lowers second-year income 1.5%. Securities carried $380M of gross unrealized losses, exposing value and potential funding flexibility to renewed rate pressure.
• Cybersecurity and litigation: A vendor’s 2023 MOVEit breach exposed personal identifiers of ≈429,000 customers. Related litigation remains unresolved; management says cyber-related costs have been immaterial to date, but adverse outcomes could be material.
• Legal and regulatory exposure: The $55M settlement accrual demonstrates the potential earnings effect of disputes, while banking supervision can constrain acquisitions, capital distributions, and funding choices.

Strategic Outlook and Investor Actionables

Columbia enters 2026 with a larger deposit franchise, improved capital ratios, and a defined integration timetable. The investment case depends on converting acquisition scale into per-share earnings while preserving low-cost deposits and containing concentrated real-estate credit risk.

• Integration: Track completion of Q1 2026 conversion and realization of full savings by 6/30/2026; sustained expense improvement and diluted EPS growth would validate the acquisition thesis.
• Funding and margins: Track core and brokered deposit mix, refinancing of 2026 maturities, and net interest margin; rising deposit costs would challenge the funding advantage.
• Credit: Track commercial real estate non-accruals, charge-offs, and allowance coverage; deterioration would test whether the expanded portfolio’s reserves are sufficient.