Columbia Banking System, Inc. (COLB) Earnings

Management highlights

- Strategic Priorities & Core Discipline • Maintain three core priorities: delivering consistent, repeatable results, reshaping the balance sheet for improved long-term profitability, and returning excess capital to shareholders • Refuse to pursue irrational market pricing for loans and deposits, prioritizing long-term shareholder value over growth for growth's sake; only compete for high-quality relationships that meet internal return targets • Completed integration of the PAC Premier acquisition ahead of schedule, exceeding the original cost-savings target by $5 million and coming in materially under the original merger-related cost estimate - Balance Sheet & Loan Portfolio Activity • Commercial loan origination volume hit $1.3 billion in Q2, in line with Q1 levels; commercial origination (including owner-occupied CRE) was up 9% sequentially and 49% year-over-year, driving 5% annualized net growth in the commercial portfolio • Intentionally reduced wholesale, public, and brokered deposit balances; core deposit outflows from seasonal April tax payments were offset by targeted deposit campaigns, with balances stabilizing in May-June and expanding in July to date • Grew core deposits via relationship-focused outreach rather than promotional pricing, generating nearly $1.5 billion in new year-to-date deposits through July; the spot cost of interest-bearing deposits declined 4 basis points sequentially to 1.94% - Capital Return & Operational Investment • Returned over $300 million to shareholders in Q2 via regular dividends and common share repurchases; repurchased 6.6 million shares for $200 million, leaving $200 million remaining on the current repurchase authorization • Held approximately $530 million in excess capital above long-term regulatory target ratios as of quarter end; management views repurchasing the firm's own stock as the best current use of excess capital • Continued strategic expansion into new markets, opening a second Colorado branch and a new Las Vegas financial hub, with two additional branches planned; made targeted strategic hires across geographies and business lines, including customer-facing and back-office roles • Grew fee income across all core lines, including treasury management, commercial and merchant cards, and wealth management, driven by new customer acquisition and seasonal activity increases

Guidance

- Net interest margin: Management reaffirms prior guidance that NIM will move beyond 4% during 2026, and expects Q2 2026 average NIM to hit and exceed the 4% threshold - Non-interest income: Guidance for Q3 2026 non-interest revenue is set for the mid-$80 million range - Non-interest expense: Excluding CDI amortization, guidance for Q3 2026 non-interest expense is a range of $330 to $335 million; management expects Q4 2026 non-interest expense to fall in the same Q3 range, with normalized long-term growth running at roughly 2% - Share repurchases: Q3 2026 share repurchases are expected to fall in the $150 to $200 million range. Management will announce new repurchase authorization plans in the fall 2026 earnings call, as the current program nears completion - Transactional portfolio runoff: Management expects the current 12-13% annual runoff rate for the legacy transactional portfolio to continue, with approximately $250 million or more in quarterly reductions; roughly $3 billion of the transactional portfolio will mature or reprice over the next 12 months, with the pace of runoff slowing after that - Core deposit growth: Full-year 2026 core deposit growth is targeted at low single-digit percentages - Overall average earning assets: Management expects Q3 2026 average earning assets to be flat to down from current levels, reflecting continued elevated CRE prepayments even as C&I and owner-occupied CRE grows - Fee income growth: Long-term fee income growth is expected to run at a mid-single-digit rate, incrementally increasing the share of revenue from fee income over time

Segment performance

The firm reports total average earning assets of $60.3 billion for Q2 2026, down modestly from the prior quarter due to continued balance sheet optimization and elevated commercial real estate (CRE) payoffs. Commercial & Industrial (C&I) and owner-occupied commercial real estate loans now represent 42% of the total loan portfolio, as the firm intentionally remixes its portfolio toward higher-return, relationship-based lending. Net interest margin (NIM) was 3.93% in Q2, or flat with Q1 after adjusting for a 3 basis point one-time credit-related interest reversal. GAAP non-interest income was $88 million, and operating non-income was $91 million, exceeding the prior guidance range of $80-$85 million even after adjusting for a one-time $3 million BOLI gain. Operating non-interest expense was $366 million; excluding $38 million in intangible amortization, the run rate of $328 million came in below the guided range. Provision expense was $27 million, reflecting loan portfolio runoff, credit migration, and modest forecast changes. Allowance for credit losses coverage of total loans was 1.01% at quarter end, or 1.26% when including credit discounts on acquired loans. Regulatory CET1 ratio was 11.6% and total risk-based capital ratio was 13.4% at quarter end. Total loans declined to $47.2 billion from $47.7 billion at the end of Q1, driven by intentional runoff in the transactional loan portfolio and elevated payoffs in non-owner-occupied CRE.

Risks & headwinds

- Intensifying industry competition for both loans and deposits: Competitors are offering irrational pricing on CRE loans, leading to elevated unexpected payoffs as borrowers refinance elsewhere. Competition for deposits has also increased sharply, with competitors offering elevated rates on liquid money market accounts and CDs that create upward pressure on industry deposit costs - Accounting volatility in the investment securities portfolio: Higher macro interest rates have slowed expected prepayment speeds on mortgage-backed and CMO securities held at a discount to par, reducing discount accretion and creating an unanticipated 4 basis point NIM headwind in Q2 - Deposit cost pressure: After sequential declines in Q1 and Q2, management expects overall deposit costs have likely reached a near-term trough, with potential for modest upward pressure as maturing CDs reprice in the current elevated rate environment - Credit concentration: The agricultural loan portfolio remains the primary area of ongoing credit monitoring, though credit metrics have stabilized and shown modest improvement in recent quarters - Elevated CRE prepayment volatility: Intense competition in the CRE market has led to higher-than-expected payoff volumes in Q2, driving an overall net contraction in total loans that is expected to persist into Q3

Analyst Q&A

• Q: The analyst asks to break down the roughly $500 million quarterly net loan decline into intentional runoff, organic growth, and unexpected CRE payoffs, and asks if a $1.5 billion runoff in the transactional portfolio in H2 2026 is a reasonable target. /

  A: Management breaks the decline into three parts: $270 million in intentional runoff from the transactional portfolio, just over $250 million in net growth for C&I and owner-occupied CRE, and the remainder from elevated unexpected CRE payoffs from competitors offering irrational pricing. Management confirms the expected transactional portfolio runoff will hold at ~$250 million or more per quarter, putting $1.5 billion of total runoff in H2 2026 in line with current expectations. Roughly $3 billion of the transactional portfolio matures/reprices over 12 months, with runoff slowing after summer 2027. (518 characters)

• Q: The analyst asks about management’s appetite for whole bank M&A after completing the PAC Premier integration, and asks for any update on M&A strategy. /

  A: Management reaffirms zero interest in whole bank M&A, noting PAC Premier was the missing piece to complete the firm’s planned West Coast franchise. The firm already holds attractive market share in its core markets, and organic de novo expansion into new markets is working successfully (the new Colorado Springs branch already holds $80 million in deposits). Management believes buying back the firm’s own undervalued stock remains the best use of excess capital for the foreseeable future. A small fee income/deposit capability bolt-on acquisition is possible, but no whole bank deals are being pursued. (632 characters)

• Q: The analyst asks how NIM reached 3.93% in Q2, and asks to confirm whether the 4%+ NIM target for 2026 will be achieved as an average Q3 2026 rate. /

  A: The Q2 NIM print reflects two unanticipated one-off headwinds: a 3 basis point headwind from one-time credit-related interest reversals, and a 4 basis point headwind from slower discount accretion on the securities portfolio driven by higher Q2 rates reducing prepayment expectations. Excluding these factors, NIM was flat with Q1. Management confirms it expects the full Q3 2026 average NIM to reach and exceed the 4% threshold, driven by continued loan portfolio remixing and repricing. (489 characters)

• Q: The analyst asks if selling low-yielding transactional CRE loans at a discount makes sense now, given market demand and irrational competitive pricing that is driving payoffs. /

  A: Management notes it evaluates the option of selling this portfolio every quarter. It continues to conclude that forced selling at current prices would dilute tangible book value and is not accretive for shareholders. The firm’s current strategy of allowing the portfolio to run off as loans mature naturally and recycling the capital into higher-yielding relationship-based C&I and owner-occupied CRE loans remains the best path to create long-term shareholder value. (397 characters)