COLUMBIA BANKING SYSTEM, INC. REPORTS FIRST QUARTER 2023 RESULTS

PORTLAND, Ore., April 26, 2023 First Quarter 2023 Results

• Net income of $(14) million, or $(0.09) per common share
• Operating net income of $72 million, or $0.46 per common share1
• Successfully closed merger with Umpqua Holdings Corporation and completed core systems conversion
• Consolidated asset balances increased $22 billion to $54 billion at quarter end
• Loan balances of $37 billion and deposit balances of $42 billion at quarter end

/PRNewswire/ --

Organizational Update

On February 28, 2023, Columbia Banking System, Inc. ("Columbia", "we" or "our") completed its merger with Umpqua Holdings Corporation ("UHC"), combining the two premier banks in the Northwest to create one of the largest banks headquartered in the West ("the merger"). Columbia completed its core systems conversion on March 20, 2023, and branch consolidations are scheduled to occur through the second quarter of 2023.

Columbia's financial results for any periods ended prior to February 28, 2023 reflect UHC results only on a standalone basis. In addition, Columbia's reported financial results for the first quarter of 2023 reflect UHC financial results only until the closing of the merger after the close of business on February 28, 2023. As a result of these two factors, Columbia's financial results for the first quarter of 2023 may not be directly comparable to prior reported periods. The number of shares issued and outstanding, earnings per share, additional paid-in capital, and all references to share quantities or metrics of Columbia have been retrospectively restated to reflect the equivalent number of shares issued in the merger as the merger was treated as a reverse merger. Under the reverse acquisition method of accounting, the assets and liabilities of Columbia as of February 28, 2023 ("historical Columbia") were recorded at their respective fair values.

Net Interest Income

Net interest income was $375 million for the first quarter of 2023, up $69 million from the prior quarter. The increase, which includes $32 million of purchase accounting accretion and amortization, reflects one month of the combined company's larger balance sheet as well as the net favorable impact of higher interest rates.

Columbia's net interest margin was 4.08% for the first quarter of 2023, up 7 basis points from 4.01% for the fourth quarter of 2022. The net interest margin for the month of March was 4.31%, which includes a 76-basis point net benefit from purchase accounting accretion and amortization and an approximate 10-basis point adverse impact from holding higher cash balances funded by borrowings beginning March 13, 2023. The cost of interest-bearing deposits increased 55 basis points on a linked-quarter basis to 1.32% for the first quarter of 2023, which compares to 1.33% for the month of March and 1.43% on March 31, 2023. Please refer to the Q1 2023 Earnings Presentation for additional net interest margin change details and interest rate sensitivity information as well as our non-GAAP disclosures in this press release for the impact of purchase accounting accretion and amortization on individual line items.

Non-interest Income

Non-interest income was $55 million for the first quarter of 2023, up $20 million from the prior quarter. While results benefited from one month as a combined organization, the increase was primarily driven by a $16 million favorable change in cumulative fair value adjustments and mortgage servicing rights ("MSR") hedging activity. A net fair value gain of $8.1 million in the first quarter compares to a net fair value loss of $8.1 million in the fourth quarter, as detailed in our non-GAAP disclosures.

Non-interest Expense

Non-interest expense was $343 million for the first quarter of 2023, up $148 million from the prior quarter level. The increase reflects one month of the higher expense rate of the combined organization as well as a $104 million linked-quarter increase in merger-related expenses, which were $116 million in the first quarter, inclusive of a $20 million contribution to the Umpqua Bank Charitable Foundation that was outlined when the merger was announced in October 2021. Please refer to the Q1 2023 Earnings Presentation for additional expense details, including an update on realized merger-related cost-savings through March 31, 2023.

Balance Sheet

Total consolidated assets were $54.0 billion as of March 31, 2023, an increase of $22.2 billion compared to $31.8 billion as of December 31, 2022. The increase was driven by the addition of historical Columbia balances at fair value on February 28, 2023, related intangible assets, and higher cash balances added in March that were funded by borrowings. Cash and cash equivalents was $3.6 billion as of March 31, 2023, an increase of $2.3 billion relative to December 31, 2022.  Including secured off-balance sheet lines of credit, total available liquidity was $17.9 billion as of March 31, 2023, representing 33% of total assets, 43% of total deposits, and 121% of uninsured deposits. Please refer to the Q1 2023 Earnings Presentation for additional details related to our liquidity position.

Available for sale securities, which are held on balance sheet at fair value, were $9.2 billion as of March 31, 2023, an increase of $6.1 billion relative to December 31, 2022, primarily due to the addition of $6.2 billion of historical Columbia balances, which were categorized as available for sale at quarter end. The net unrealized loss on historical Columbia securities was eliminated as of February 28, 2023, as part of the reverse merger method of accounting, and these securities had a pre-tax net unrealized gain of $84 million as of March 31, 2023. On a consolidated basis, our available for sale securities balance of $9.2 billion includes a pre-tax net unrealized loss of $397 million as historical UHC balances were not marked as part of the merger, and the net unrealized gain position associated with historical Columbia balances does not fully offset the net unrealized loss position related to the remainder of the consolidated portfolio. Held to maturity securities were $2.4 million at March 31, 2023, and represent investments in local community housing bonds; there is no unrealized loss associated with these balances.

Following the close of the merger, we restructured a portion of the historical Columbia securities portfolio during the first week of March by selling $1.2 billion of securities and purchasing $937 million of securities with the proceeds. The restructure transactions resulted in no gain or loss on the income statement. Purchases included agencies, mortgage-backed securities, and collateralized mortgage obligations with a projected average yield of 4.63%. The restructuring reduced the potential adverse impact to net interest income in a declining interest rate environment, which the Q1 2023 Earnings Presentation reviews.

Gross loans and leases were $37.1 billion as of March 31, 2023, an increase of $10.9 billion relative to December 31, 2022, due to the addition of $10.9 billion of historical Columbia balances at fair value. "On an organic basis, loans were up just slightly during the first quarter, as drawdowns related to single-family home construction offset slight declines in commercial portfolio balances," commented Tory Nixon, President of Umpqua Bank. Please refer to the Q1 2023 Earnings Presentation for additional details related to our loan portfolio, which include underwriting characteristics, the composition of our commercial portfolios, and enhanced disclosure related to our office portfolio.

Total deposits were $41.6 billion as of March 31, 2023, an increase of $14.5 billion relative to December 31, 2022, primarily due to the addition of $15.2 billion of historical Columbia balances at fair value. "Our deposit balances continued to be affected by market liquidity tightening and the impact of inflation on customer spending," stated Mr. Nixon. "Declining balances with existing customers was the primary driver of the net reduction in deposits during the month of March and for the first quarter on an organic basis. We were pleased to see continued new account acquisition in March in both the consumer and commercial bank across all major product types." Please refer to the Q1 2023 Earnings Presentation for additional details related to deposit characteristics and flows.

Credit Quality

The allowance for credit losses was $436 million, or 1.18% of loans and leases, as of March 31, 2023, compared to $315 million, or 1.21% of loans and leases, as of December 31, 2022.  The $121 million increase in the allowance includes the addition of $26 million related to historical Columbia purchased credit deteriorated ("PCD") loans and $5.8 million related to historical Columbia off balance sheet commitments, which were booked at the merger's close and did not affect the income statement. The provision for credit losses was $106 million for the first quarter of 2023, which includes an initial provision of $88 million for historical Columbia non-PCD loans. Outside the initial provision, the quarter's expense was driven almost entirely by changes between the November 2022 and February 2023 economic forecasts used in credit models, with a modest expense associated with the change in mix. Please refer to the Q1 2023 Earnings Presentation for additional details related to the allowance for credit losses, including a breakout of the aforementioned impacts of the merger.

Net charge-offs were 0.23% of average loans and leases (annualized) for the first quarter of 2023, compared to 0.19% for the fourth quarter of 2022. Net charge-off activity continued to be centered in the FinPac portfolio as bank charge-off activity was de minimis. As of March 31, 2023, non-performing assets were $76 million, or 0.14% of total assets, compared to $59 million, or 0.18% as of December 31, 2022. The $17 million linked-quarter increase primarily reflects the addition of historical Columbia balances.

Capital

As of March 31, 2023, Columbia's book value per common share increased to $23.44, compared to $19.18 at December 31, 2022, which was retrospectively restated under the reverse merger method of accounting. The linked-quarter change in book value primarily reflects common shares issued and exchanged as a result of the merger and a change in accumulated other comprehensive (loss) income ("AOCI") to $(300) million at March 31, 2023, compared to $(427) million at the prior quarter-end. The change in AOCI is due primarily to a reduction in the tax-effected net unrealized loss on available for sale securities to $295 million at March 31, 2023, compared to $403 million at December 31, 2022.  Tangible book value per common share[3] decreased to $15.12, compared to $19.14 at December 31, 2023 as a result of $1.0 billion of goodwill and $710 million of core deposit intangible assets added through the merger.

Columbia's estimated total risk-based capital ratio was 11.0% and its estimated common equity tier 1 risk-based capital ratio was 8.9% as of March 31, 2023. Columbia remains above current "well-capitalized" regulatory minimums. "While initial fair value marks drove the linked quarter decline in our regulatory capital ratios, we expect loan and investment securities discount accretion to contribute meaningfully to capital build over time," stated Ron Farnsworth, Chief Financial Officer of Columbia. The regulatory capital ratios as of March 31, 2023 are estimates, pending completion and filing of Columbia's regulatory reports. 

Earnings Presentation and Conference Call Information

Columbia's Q1 2023 Earnings Presentation provides additional disclosure. A copy will be available on our investor relations page: www.columbiabankingsystem.com.

Columbia will host its first quarter 2023 earnings conference call on April 26, 2023, at 2:00 p.m. PT (5:00 p.m. ET).  During the call, Columbia's management will provide an update on recent activities and discuss its first quarter 2023 financial results. Participants may register for the call using the below link to receive dial-in details and their own unique PINs or join the audiocast. It is recommended you join 10 minutes prior to the start time.

Register for the call: https://register.vevent.com/register/BI3ca3e280dadd437cafdf87ba3e2fcb28 
Join the audiocast: https://edge.media-server.com/mmc/p/jtad2627
Access the replay through Columbia's investor relations page: www.columbiabankingsystem.com 

About Columbia Banking System, Inc.

Columbia (Nasdaq: COLB) is headquartered in Tacoma, Washington and is the parent company of Umpqua Bank, an award-winning western U.S. regional bank based in Lake Oswego, Oregon. In March of 2023, Columbia and Umpqua combined two of the Pacific Northwest's premier financial institutions under the Umpqua Bank brand to create one of the largest banks headquartered in the West and a top-30 U.S. bank. With over $50 billion of assets, Umpqua Bank combines the resources, sophistication and expertise of a national bank with a commitment to deliver personalized service at scale. The bank operates in Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah, and Washington and supports consumers and businesses through a full suite of services, including retail and commercial banking; Small Business Administration lending; institutional and corporate banking; and equipment leasing. Umpqua Bank customers also have access to comprehensive investment and wealth management expertise as well as healthcare and private banking through Columbia Wealth Management and Columbia Trust Company, a subsidiary of Columbia. Learn more at www.columbiabankingsystem.com.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. These statements are necessarily subject to risk and uncertainty and actual results could differ materially due to various risk factors, including those set forth from time to time in our filings with the Securities and Exchange Commission (the "SEC"). You should not place undue reliance on forward-looking statements and we undertake no obligation to update any such statements. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," "target," "projects," "outlook," "forecast," "will," "may," "could," "should," "can" and similar references to future periods. In this press release we make forward-looking statements about strategic and growth initiatives and the result of such activity. Risks that could cause results to differ from forward-looking statements we make include, without limitation: current and future economic and market conditions, including the effects of declines in housing and commercial real estate prices, high unemployment rates, continued inflation and any recession or slowdown in economic growth particularly in the western United States; economic forecast variables that are either materially worse or better than end of quarter projections and deterioration in the economy that could result in increased loan and lease losses, especially those risks associated with concentrations in real estate related loans; our ability to effectively manage problem credits; the impact of bank failures or adverse developments at or news developments concerning other banks on general investor sentiment regarding the liquidity stability of banks; changes in interest rates that could significantly reduce net interest income and negatively affect asset yields and valuations and funding sources; changes in the scope and cost of FDIC insurance and other coverage; our ability to successfully implement efficiency and operational excellence initiatives; our ability to successfully develop and market new products and technology; changes in laws or regulations; any failure to realize the anticipated benefits of the merger when expected or at all; the possibility that the integration following the merger may be more expensive than anticipated, including as a result of unexpected factors or events, diversion of management's attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the merger and integration of the companies; the effect of geopolitical instability, including wars, conflicts and terrorist attacks; and natural disasters and other similar unexpected events outside of our control. We also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Columbia, market conditions, capital requirements, applicable law and regulations (including federal securities laws and federal banking regulations), and other factors deemed relevant by Columbia's Board of Directors, and may be subject to regulatory approval or conditions.

¹ "Non-GAAP" financial measure.  See GAAP to Non-GAAP Reconciliation for the comparable GAAP measurement.
² Prior periods have been restated as a result of the adjustment to common shares outstanding based on the exchange ratio from the merger of 0.5958.
³ "Non-GAAP" financial measure. See GAAP to Non-GAAP Reconciliation for the comparable GAAP measurement.