KBRA Affirms Ratings for Columbia Banking System, Inc.

1 Mar 2024   |   New York


KBRA affirms the senior unsecured debt rating of A-, the subordinated debt rating of BBB+, and the short-term debt rating of K2 for Tacoma, Washington-based Columbia Banking System, Inc. (NASDAQ: COLB) ("the company"). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of A, the subordinated debt rating of A-, and the short-term deposit and debt ratings of K1 for Umpqua Bank. The outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are underpinned by a robust deposit funding base, which is anchored by a large proportion of NIB deposits, resulting in total deposit costs that continued to track well below most similarly-rated peers throughout 2023. An attractive Northwestern operating footprint in economically diverse and vibrant states contributes to COLB’s enviable deposit base, and, in KBRA’s assessment, provides broad support to the ratings. Among regionally based institutions, the company effectively holds top deposit market shares in the home markets of OR and WA, further reinforcing deposit depth and durability. We also view the contingent liquidity backstop as sufficient, including solid on-balance sheet capacity.

COLB’s meaningful operating and geographic scale, both for lending opportunities and for cultivating deposit relationships, provides a solid platform for long term earnings performance, especially in a normalized interest rate environment. However, more recently, competitive pressures combined with downward shift in the NIB deposit mix, although reflecting a robust 34% of deposits at YE23, have led to the company leveraging comparatively higher levels of wholesale funds (i.e., brokered deposits and FHLB borrowings) relative to many similarly-rated peers. With the more price sensitive noncore funding representing close to 20% of the funding mix at YE23, coupled with muted loan growth expectations, NIM compression is unlikely to abate in the near term in the context of the current interest rate environment. While NIM (~3.80% in 4Q23) has continued to track better than most peers, contributing to generally peer-like overall core earnings performance (adjusted ROA of ~1.00% in 2023), it included moderate uplift from purchase accounting accretion income, which we recognize has been consistent during 2023, although can be subject to variability or less predictability over time. Additionally, given the rate and volume challenges within the mortgage market, the company has become more spread reliant, placing greater pressure on net interest income.

The lower-cost deposit base moderates the need to take outsized loan credit risks, which, in KBRA’s view, translates to a conservative credit profile, which has been demonstrated through better than peer asset quality through recent years. COLB’s investor office exposures are manageable at ~5% of total loans, about 80% of which are partly protected by personal guarantees. We also recognize the portfolio’s solid reported LTV (56%) and DSCR (1.72x) buffers, modest downtown exposures, and limited scheduled maturities in the coming years.

Capital protection as measured by the CET1 ratio (9.6% at 4Q23) has exhibited respectable growth (+70 bps) since the closing of the merger in 1Q23 between Umpqua Holdings Corporation and COLB, owing to disciplined loan growth, earnings retention that offset relatively high dividend payouts, and pause in share buybacks. However, the ratio remains well below the average of the rating category. KBRA’s expectation is that the CET1 ratio will be rebuilt over time to a level more commensurate with that of similarly rated peers, which both predecessor companies have managed to historically.

Rating Sensitivities

Positive rating momentum is unlikely in the intermediate term. In the context of heightened macroeconomic uncertainties, the ratings would most likely be re-evaluated if loan quality deteriorates significantly, resulting in persistently weakened earnings or regression in regulatory capital, particularly the CET1 ratio. Additionally, comparatively more aggressive capital management leading to an inability to demonstrate rebuild of the CET1 ratio to levels more commensurate with the rated peer group prospectively could pressure the rating.

To access rating and relevant documents, click here.



A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1003317

805 Third Avenue
29th Floor
New York, NY 10022
+1 (212) 702-0707
Contact Us

© 2010-2024 Kroll Bond Rating Agency, LLC. All Rights Reserved. Kroll Bond Rating Agency, LLC is not affiliated with Kroll Inc., Kroll Associates Inc., KrollOnTrack Inc., or their affiliated businesses.