Columbia Banking System (COLB) Q4 2025 earnings review
Merger Synergies Drive Margins, but Loan & Deposit Volumes Shrink
Columbia Banking System closed 2025 with strong earnings accretion driven by the Pacific Premier (PPBI) acquisition. Operating EPS of $0.82 reflects significant margin expansion, with Net Interest Margin (NIM) jumping 22 basis points to 4.06%. However, volume metrics were softer: total loans declined 1% and deposits fell 3% ($1.6B) sequentially. Management attributes the shrinkage to 'intentional' runoff of transactional loans and brokered deposits to optimize the balance sheet. While integration is on track for Q1 2026 completion, the company faces a mechanical headwind in Q1 as a $12M temporary accretion benefit expires.
🐂 Bull Case
The Pacific Premier integration is proceeding smoothly, with systems conversion scheduled for Q1 2026. Management reaffirmed they expect to realize all deal-related cost savings by June 30, 2026, which will drive operating leverage in FY26.
Despite total deposit outflows, the funding mix improved. The cost of interest-bearing deposits fell 35 bps to 2.08%, aided by the shedding of expensive brokered deposits and aggressive rate management. This underpinned the NIM expansion.
🐻 Bear Case
Total assets (-1%), loans (-1%), and deposits (-3%) all contracted sequentially. While management cites 'optimization,' shrinking earning assets creates a revenue headwind that puts excessive pressure on NIM to carry earnings growth.
The Q4 NIM of 4.06% included a temporary 8-basis-point benefit ($12M) from the amortization of acquired time deposit premiums. This benefit was fully amortized as of Dec 31, 2025, creating an immediate mechanical headwind for Q1 2026.
⚖️ Verdict: ⚪
Neutral/Positive. The financial benefits of the PPBI merger are evident in the robust NIM and Operating EPS. However, the reliance on one-time accretion benefits and the sequential contraction in both loans and deposits warrants caution. Execution on the Q1 2026 systems conversion is the next critical catalyst.
Key Themes
Pacific Premier Integration & Cost Saves
Accelerating. The integration is the central driver for COLB. With the acquisition closed on August 31, 2025, Q4 reflected a full quarter of combined operations. Systems conversion is set for Q1 2026, with full cost savings realization expected by mid-2026. Pacific Premier contributed an additional $62M to non-interest expense in Q4, but synergies are beginning to materialize.
Deposit Outflows & Seasonality
Decelerating. Total deposits fell by $1.6B (-3%) sequentially to $54.2B. Management attributed this to an 'intentional reduction' in brokered deposits (seeking better rate mix) and seasonal tax payments/distributions. While optimizing mix is positive, the magnitude of the outflow reduces the funding base available for lending.
Balance Sheet Optimization (Loan Runoff)
Reversing. Gross loans decreased $686M (-1%) sequentially. This aligns with the strategy to run off 'transactional' and 'below-market-rate' portfolios inherited from mergers. While this improves yield (loan yields roughly flat at ~6% despite rate cuts), it creates a volume hole that organic commercial growth (+6% annualized) is struggling to fill completely.
Credit Normalization in FinPac
Stable/Negative. Net charge-offs rose to 0.25% (up from 0.22% in Q3). The FinPac portfolio (equipment finance) remains a specific pressure point, accounting for $14M of the quarter's charge-offs. While not alarming, the upward drift in NCOs and non-performing assets (0.30% vs 0.29%) bears monitoring as the credit cycle matures.
Capital Return Activation
Accelerating. With the merger closed and integration stabilizing, COLB reactivated capital returns, repurchasing $100M of stock in Q4. The Board declared a $0.37 dividend. Robust capital ratios (CET1 11.8% estimated) support continued buybacks.
One-Time NIM Distortion
Reversing. The 22bp jump in NIM was heavily aided by a purchase accounting anomaly. The amortization of a premium on PPBI time deposits contributed $12M to NII (approx. 8bps of NIM). This premium is now 'fully amortized,' meaning Q1 2026 faces an immediate structural headwind to NII and NIM compared to Q4.
Other KPIs
Accelerating. Up 24% sequentially ($505M in Q3), driven by the full-quarter impact of the PPBI acquisition. However, this includes the non-recurring $12M accretion benefit.
Accelerating. Up from $96M GAAP / $242M Operating (implied) in prior periods. Shows the earnings power of the combined entity once merger costs ($39M in Q4) are excluded.
Improving. Down 35 basis points from 2.43% in Q3. This rapid repricing reflects the Fed rate environment and the shedding of expensive brokered deposits.
Guidance
Stable. The company remains on track to complete branch consolidations and systems conversion in the current quarter (Q1 2026). This is the prerequisite for achieving the final tranche of cost savings.
Stable. Management reaffirmed the timeline to realize 'all related cost savings' by the end of Q2 2026. This implies operating expense run-rates should step down in the second half of 2026.
New initiative. Following Q4 outflows, a new campaign launches in Feb 2026 to rebuild balances. Prior 2025 campaigns generated $1.3B, suggesting this is a key lever to reverse the Q4 contraction.
Key Questions
NIM Trajectory post-Accretion
With the $12M premium amortization benefit fully exhausted as of Dec 31, and assuming a static rate environment, should we expect Q1 NIM to compress by the full 8 basis points, or are there organic offsets available?
Deposit Floor vs. Outflows
Deposits contracted $1.6B this quarter. Was the 'intentional reduction' primarily price-sensitive brokered money, and have we reached a floor where we can expect net growth to resume in Q1?
Loan Growth vs. Runoff
Commercial loans grew 6% annualized, but total loans shrank due to transactional runoff. How much of the transactional/below-market portfolio remains to be shed, and when do you expect total loan balances to inflect to positive growth?
FinPac Credit Trends
FinPac charge-offs were $14M in Q4. Given the macro environment, do you expect this portfolio's loss rates to stabilize here, or is there risk of further deterioration in the equipment finance space?