Columbia Banking System(COLB) - 2025 Q1 - Quarterly Report

Part I. Financial Information Financial Statements (Unaudited) The unaudited financial statements for the quarter ended March 31, 2025, show total assets of $51.5 billion, a slight decrease from year-end 2024, with net income of $86.6 million primarily impacted by a legal settlement expense, and a subsequent merger agreement announced Condensed Consolidated Financial Statements The company's total assets stood at $51.5 billion as of March 31, 2025, a slight decrease from $51.6 billion at the end of 2024, with Q1 2025 net income at $86.6 million ($0.41 per diluted share) down from $124.1 million ($0.59 per diluted share) in Q1 2024, primarily due to higher non-interest expenses including a significant legal settlement, and cash flow from operations at $122.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total cash and cash equivalents | $2,072,706 | $1,878,255 | | Net loans and leases | $37,194,606 | $37,256,272 | | Total assets | $51,519,266 | $51,576,397 | | Total deposits | $42,217,694 | $41,720,732 | | Total liabilities | $46,281,457 | $46,458,173 | | Total shareholders' equity | $5,237,809 | $5,118,224 | Condensed Consolidated Income Statement Highlights (in thousands, except per share) | Account | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net interest income | $424,995 | $423,362 | | Provision for credit losses | $27,403 | $17,136 | | Total non-interest income | $66,377 | $50,357 | | Total non-interest expense | $340,122 | $287,516 | | Net income | $86,609 | $124,080 | | Diluted EPS | $0.41 | $0.59 | Condensed Consolidated Cash Flow Highlights (in thousands) | Account | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $122,012 | $185,508 | | Net cash provided by (used in) investing activities | $250,245 | $(77,675) | | Net cash used in financing activities | $(177,806) | $(69,250) | | Net increase in cash and cash equivalents | $194,451 | $38,583 | Note 2 – Debt Securities As of March 31, 2025, the company held $8.23 billion in available-for-sale (AFS) debt securities at fair value, with mortgage-backed securities comprising the largest portion at $5.83 billion, and the portfolio had gross unrealized losses of $482.4 million primarily due to interest rate changes, not credit quality deterioration, thus requiring no allowance for credit losses Available for Sale Debt Securities (in thousands) | Security Type | Amortized Cost | Fair Value | | :--- | :--- | :--- | | U.S. Treasury and agencies | $1,426,351 | $1,373,033 | | Obligations of states and political subdivisions | $1,051,171 | $1,020,842 | | Mortgage-backed securities and CMOs | $6,204,692 | $5,834,930 | | Total AFS securities | $8,682,214 | $8,228,805 | - The company's debt securities had total unrealized losses of $482.4 million as of March 31, 2025, which management attributes to changes in interest rates and market spreads, not the credit quality of the issuers[21][22] Note 4 – Allowance for Credit Losses (ACL) The total Allowance for Credit Losses (ACL) was $438.9 million at March 31, 2025, a slight decrease from $440.8 million at year-end 2024, reflecting updated economic forecasts and model recalibrations, while non-accrual loans increased to $122.4 million from $96.5 million in the prior quarter, and loan modifications totaled $54.0 million in Q1 2025 - The total ACL decreased by $1.9 million to $438.9 million at March 31, 2025. The change reflects credit migration, updated economic assumptions, and model recalibrations[30] ACL Activity for Three Months Ended March 31, 2025 (in thousands) | Component | Beginning Balance (Dec 31, 2024) | Provision for Credit Losses | Net Charge-offs | Ending Balance (Mar 31, 2025) | | :--- | :--- | :--- | :--- | :--- | | Allowance for loans and leases | $424,629 | $26,187 | $(29,321) | $421,495 | | Reserve for unfunded commitments | $16,168 | $1,216 | N/A | $17,384 | | Total ACL | $440,797 | $27,403 | $(29,321) | $438,879 | - Non-accrual loans increased to $122.4 million as of March 31, 2025, compared to $96.5 million at December 31, 2024[37][38] Note 7 – Commitments and Contingencies The company disclosed significant legal proceedings, including a $55.0 million settlement for a class action lawsuit related to a Ponzi scheme, is defending multiple lawsuits consolidated into an MDL related to the MOVEit data breach, and as of March 31, 2025, had $10.0 billion in commitments to extend credit, with real estate loans representing 75% of total loans - A Notice of Settlement was filed on March 27, 2025, for a class action lawsuit, contemplating a settlement payment of $55.0 million by the Bank. An accrual for this amount was recorded[67][71] - The company is defending seven lawsuits, now consolidated into a multi-district litigation (MDL), arising from the MOVEit data breach incident reported by a third-party vendor[70] - Real estate-related loans represent a significant concentration of credit risk, comprising approximately 75% of the total loan and lease portfolio as of March 31, 2025[75] Note 13 – Subsequent Event On April 23, 2025, Columbia Banking System, Inc. entered into a definitive merger agreement to acquire Pacific Premier Bancorp, Inc. in an all-stock transaction, where Pacific Premier stockholders will receive 0.9150 of a share of Columbia common stock for each Pacific Premier share, subject to shareholder and regulatory approvals - Announced a definitive agreement to acquire Pacific Premier Bancorp, Inc. in an all-stock transaction on April 23, 2025[126] - The merger will create a combined company with approximately $70 billion in assets. The closing is expected in the second half of 2025, pending customary approvals[126] Management's Discussion and Analysis (MD&A) Management's discussion highlights a decrease in quarterly earnings to $0.41 per diluted share, heavily impacted by a $55.0 million legal settlement accrual, with net interest margin stable at 3.60%, strong liquidity of $19.0 billion, capital ratios exceeding 'well-capitalized' minimums, and a normalizing credit environment with increased non-performing assets but a stable ACL at 1.17% of total loans Financial Performance For Q1 2025, diluted EPS was $0.41, a decrease from $0.68 in Q4 2024 and $0.59 in Q1 2024, primarily due to a $55.0 million legal settlement and $14.6 million in severance expenses, while net interest margin (tax-equivalent) was 3.60%, non-interest income increased to $66.4 million, and non-interest expense rose to $340.1 million Quarterly Financial Performance Comparison | Metric | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Diluted EPS | $0.41 | $0.68 | $0.59 | | Net Interest Margin (tax-equiv.) | 3.60% | 3.64% | 3.52% | | Non-interest Income | $66.4M | $49.7M | $50.4M | | Non-interest Expense | $340.1M | $266.6M | $287.5M | - The primary driver for the decrease in earnings compared to prior periods was a $55.0 million accrual for a legal settlement and $14.6 million in severance expense[137] Financial Condition As of March 31, 2025, total assets were $51.5 billion, with total loans and leases decreasing slightly to $37.6 billion and total deposits growing to $42.2 billion, improving the loan-to-deposit ratio to 89%, while non-performing assets increased to 0.35% of total assets, and the company maintained a strong capital position with a CET1 ratio of 10.6% and robust liquidity of $19.0 billion - Total loans and leases decreased by $64.8 million to $37.6 billion, while total deposits increased by $497.0 million to $42.2 billion from the prior quarter-end[181][209] - Non-performing assets rose to $178.0 million, or 0.35% of total assets, up from $169.6 million (0.33%) at year-end 2024, reflecting a normalization of the credit environment[140][201] - The company's CET1 capital ratio was 10.6% and its total risk-based capital ratio was 12.9%, both exceeding 'well-capitalized' regulatory minimums[146][226] - Total available liquidity was $19.0 billion, including $15.0 billion in off-balance sheet funding sources from the FHLB and Federal Reserve Discount Window[146][218] Credit Quality and Allowance for Credit Losses Asset quality showed signs of normalization with non-performing assets increasing to $178.0 million (0.35% of total assets), while the Allowance for Credit Losses (ACL) remained stable at $438.9 million, or 1.17% of total loans, and the provision for credit losses for the quarter was $27.4 million, with net charge-offs of $29.3 million largely from the commercial portfolio Asset Quality Ratios | Ratio | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Non-performing assets to total assets | 0.35% | 0.33% | | Non-performing loans to total loans | 0.47% | 0.44% | | ACL to total loans and leases | 1.17% | 1.17% | - The ACL decreased by $1.9 million to $438.9 million, with changes reflecting credit migration, updated economic forecasts, and model recalibrations[202] - Net charge-offs for Q1 2025 were $29.3 million, or 0.32% of average loans, an increase from $25.7 million (0.27%) in Q4 2024[160] Market Risk Disclosures The company's market risk profile has not materially changed, with interest rate simulation modeling showing limited exposure of Net Interest Income (NII) to rate changes (less than 1% impact in plausible downward rate scenarios), and Economic Value of Equity (EVE) analysis indicating a liability-sensitive profile Net Interest Income Sensitivity (Year 1) | Rate Shock | Impact on NII (Mar 31, 2025) | | :--- | :--- | | Up 200 bps | (0.7)% | | Up 100 bps | (0.3)% | | Down 100 bps | 0.3% | | Down 200 bps | 1.0% | Economic Value of Equity (EVE) Sensitivity | Rate Shock | Impact on EVE (Mar 31, 2025) | | :--- | :--- | | Up 200 bps | (8.2)% | | Up 100 bps | (4.1)% | | Down 100 bps | 3.8% | | Down 200 bps | 6.5% | Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures are effective as of March 31, 2025[235] - No material changes to internal control over financial reporting occurred during the first quarter of 2025[236] Part II. Other Information Risk Factors The company introduced new risk factors related to its announced merger with Pacific Premier, including the possibility of non-completion due to regulatory or shareholder approval failures, potential adverse conditions imposed by regulators, challenges and costs of integration, loss of key personnel, business uncertainties during the pending merger, and the threat of shareholder litigation - The merger with Pacific Premier is subject to numerous conditions, including regulatory and shareholder approvals, which may not be fulfilled, potentially leading to the termination of the agreement[239][240] - Regulatory approvals could be delayed or impose conditions that adversely affect the combined company's revenues or expected benefits from the merger[241][242] - Integrating the two companies could be more difficult, costly, or time-consuming than expected, potentially leading to the loss of key employees, customer disruption, and failure to realize anticipated cost savings[245] Share Repurchases During the first quarter of 2025, the company repurchased 249,856 shares of its common stock at an average price of $26.98 per share, solely to satisfy withholding tax obligations upon the vesting of restricted stock units, as the company does not currently have a publicly announced share repurchase authorization Common Stock Repurchases (Q1 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2025 | 24,206 | $27.01 | | Feb 2025 | 85,713 | $27.41 | | Mar 2025 | 139,937 | $26.71 | | Total | 249,856 | $26.98 | - All shares repurchased during the quarter were to pay withholding taxes on vested restricted stock units and awards; the company does not have a current share repurchase plan[251]