Where COLB's NIM Goes Next Amid Loans Remix & Easing Rates

Core Insights - Columbia Banking (COLB) ended 2025 with improved funding structure, stable spreads, and an expanded presence in the Western U.S. following the acquisition of Pacific Premier [1] - The net interest margin (NIM) for Q4 2025 reached 4.06%, an increase of 42 basis points year-over-year, driven by lower deposit costs and reduced reliance on higher-cost wholesale funding [1][10] - Net interest income (NII) rose by 43% year-over-year in the first full quarter after the merger, supported by lower funding costs and a broader range of earning assets [1] Funding and Margin Outlook - Management anticipates NIM to increase each quarter in 2026, potentially exceeding 4% in Q2 or Q3 as deposit balances recover and balance sheet optimization continues [2] - The bank aims to maintain NIM as rates decline, with deposit betas targeted around half and proactive repricing strategies in place [2] Loan Portfolio Management - Columbia Banking is reducing approximately $8 billion in inherited multi-family balances over eight quarters starting from Q3 2025, which will limit headline loan growth through 2027 [3] - The focus is shifting towards relationship-driven commercial and industrial loans and owner-occupied commercial real estate, which are expected to generate deposits and fees [3] Fee Income and Revenue Diversification - Treasury management and commercial card fees saw year-over-year increases in 2025, with significant growth in financial services, trust, and international banking revenues [5] - Card, financial services, and trust now account for nearly 34% of non-interest income, providing stability as loan growth slows [5] Strategic Enhancements Post-Acquisition - The acquisition of Pacific Premier has expanded Columbia Banking's service offerings, including homeowners association banking and custodial trust services, leading to over 1,200 cross-sell referrals since the merger [6] Expense Management and Operational Efficiency - Expense normalization is crucial following the first-quarter system conversion, with anticipated operating expenses (excluding amortization) of $335-$345 million in Q1 and Q2, normalizing by Q3 as savings from the Pacific Premier integration are fully realized [7] Market Competition and Credit Quality - Monitoring deposit trends is essential as competition remains high, with large national banks and digital competitors potentially exerting pricing pressure on NIM [8] - Credit quality is another area of concern, with increased loss content in small-ticket leasing and office loans comprising 8% of total loans, although overall credit metrics remain manageable [9]