One of the leading regional banks on the U.S. West Coast not only has a long history of providing quality financial services, but also stands out significantly for its robust dividend policy. With a current dividend yield of 5.6%, more than double the banking industry average, and continuous growth in dividend levels over the past few years, it is a leader among banks that focus on stable returns for its shareholders.

In addition, its merger with another major bank in 2023 resulted in the creation of one of the largest financial entities in the western US, strengthening the firm's position in the market.

In addition to attractive dividends and solid financial performance, this bank offers tremendous growth potential through expansion into fast-growing markets in California, Arizona, and Colorado. With a strong presence in dynamic cities such as Los Angeles, Phoenix and Seattle, it can benefit from the higher population and household income growth in these areas. Although it currently has a relatively low market share in some key regions, the scope for expansion is huge, providing exciting opportunities for further growth and development.

Company introduction

Columbia Banking System $COLB is a regional bank headquartered in Washington State that was founded in 1993. The company specializes in a wide range of banking and financial services such as personal and business accounts, loans, mortgages, and investment products. Columbia Banking has established itself primarily on the West Coast of the United States, with offices in Washington, Oregon, and California. Its clients include individuals as well as small businesses looking for a reliable financial partner for their needs.

In 2015, Columbia Banking made a significant acquisition when it acquired West Coast Bank, strengthening its presence in the Oregon market. This move allowed it to expand its clientele and improve its service offerings, which has reflected in the bank's growth and stability. The company also focuses on building relationships with local communities and regularly supports regional initiatives and projects that contribute to the development and prosperity of these areas. Columbia Banking prides itself on its commitment to providing quality service and building long-term relationships with its clients, earning trust and loyalty in the dynamic banking industry.

With a history that goes back more than two decades, Columbia Banking has established itself as a trusted player in the regional banking industry. Its strategy of focusing on customer satisfaction and local approach to business has helped it stand out in a competitive market, whether it is personal banking or business services. Going forward, the bank plans to continue to expand and enhance its offerings to better respond to the changing needs of its customers.

Dividends

The bank currently pays a dividend of $0.36 per share, which represents a dividend yield of 5.6%. This yield is significantly higher than the average yield in the banking industry (2.78%) and also higher than the S&P 500 yield (1.5%). The bank has paid a dividend continuously since 2013, and the amount has fluctuated over time.

In terms of dividend growth, the current annualized dividend of $1.44 is 4.3% higher than the previous year. Over the past five years, Columbia Banking has increased its dividend twice on an annual basis, with an average annual increase of 6.36%. Future dividend growth will depend on earnings growth and the payout ratio, which is the proportion of annual earnings per share that is paid out as a dividend.

Currently, the bank has a Payout ratio of 63.32%. This value indicates that Columbia Banking pays out approximately 63.3% of its earnings in dividends. This ratio is considered relatively high, but not critically high. A healthy payout ratio is typically between 40-60%.

Key ratios

Columbia Banking System (COLB) appears interesting based on several key financial metrics. The current P/E (price-to-earnings) ratio is 11, which is nearly equal to the sector average.

Further, the P/B ratio stands at 1.07, which is attractive compared to the industry average of 1.30. This means that the market value of the stock is close to its book value, which is a positive signal for investors.

In terms of earnings, COLB shows a P/S (price-to-sales) ratio of 1.9, while the industry average is 2.24. Finally, the P/CF ratio is around 10.35, which is very close to the industry average of 10.45. Together, these metrics suggest that Columbia Banking System is a strong candidate for a fairly valued stock, or at least near fair value based on these metrics. Of course, looking at the chart, the stock could have been picked up at more favorable prices this year, but since the low point in 2024, the price has risen again by more than 45%, erasing the decline.

How was the last quarter?

Columbia Banking System completed a comprehensive review of its operations in the quarter. This evaluation led to consolidation of positions, simplification of reporting and organizational structures, and improved profitability prospects. As of June 30, 2024, 91% of the identified cost savings have been realized and the remaining actions are expected to occur during the third quarter of 2024.

Columbia's principal subsidiary, Umpqua Bank, opened its first retail branch in Phoenix, Arizona and its first Financial Center in Southern California, replacing an existing branch. During 2024, Umpqua closed four branches on a net basis, offset by new locations in select growth markets.

On February 28, 2023, Columbia completed its merger with Umpqua Holdings Corporation, resulting in one of the largest banks headquartered in the western United States. Columbia's results for any period prior to February 28, 2023 reflect only the results of UHC on a standalone basis. As a result, Columbia's results for the first half of 2024 may not be directly comparable to prior periods.

Net interest income was $427 million in the second quarter of 2024, an increase of $4 million compared to the prior year quarter. This increase was due to higher income from loans and investment securities and lower financing costs. Net interest margin increased to 3.56%, an increase of 4 basis points from 3.52% in the first quarter of 2024.

Noninterest expense was $45 million in the second quarter, a decrease of $6 million compared to the prior year quarter. This decrease was due to fluctuations in fair value adjustments and mortgage servicing rights hedging activities. Excluding these items, non-interest income was stable between periods.

Noninterest expense decreased to $279 million, a decrease of $8 million compared to the prior year quarter. Total consolidated assets at June 30, 2024 were $52.0 billion, a slight decrease compared to $52.2 billion at March 31, 2024.

Gross loans and leases increased to $37.7 billion, while total deposits decreased to $41.5 billion, driven by expected customer tax payments.

In terms of credit quality, the provision for loan losses was $439 million, representing 1.16% of loans and leases. Net charge-offs were 0.32% of average loans and leases, down from 0.47% in the first quarter of 2024.

Long-term results

As mentioned in the previous text, Columbia completed its merger with Umpqua Holdings Corporation, resulting in one of the largest banks headquartered in the western United States. As a result, Columbia's 2024 results may not be directly comparable to prior periods.

Why follow this bank?

Presence in Western marketsA: The bank has a significant presence in states such as Washington, Oregon, Idaho, California, Nevada, Arizona, Colorado, and Utah. In these areas, it serves millions of residents in major cities such as Seattle, Los Angeles, Phoenix and Denver.

Market shareA: In the Northwest U.S., COLB has a market share of over 9%, which places it among the large national and regional banks. It is the fifth largest bank in the eight state markets where the bank operates.

Growth opportunitiesA: The bank has the potential to grow further in attractive regions such as California, Arizona, Colorado and Utah. The population in these regions is expected to grow faster than the national average.

Favorable economic conditionsA: The average household income in the bank's geographies is higher than the national average and is trending positively.

Increase in density in the Northwest region (Northwest): In the area surrounding cities such as Seattle, Portland, Boise, and Spokane, the COLB has varying market share, with the most significant market share in Spokane (23.6%) and Portland (8.5%). In Seattle, its market share is lower (5.2%) but still represents a significant position.

Expansion in CaliforniaA: In California, particularly in Los Angeles, Sacramento, San Francisco and San Diego, the COLB has a very small market share, often less than 0.1%. This suggests potential for expansion in this state, particularly in retail banking.

Expanding presence in other western marketsA: The COLB already has a presence in cities such as Phoenix, Denver, Salt Lake City and Las Vegas, but its market share is relatively low, presenting further opportunities for growth and new branch openings.

Prospects for growth

It may be a community bank, but Columbia Banking System has several growth levers it can use to expand its business. Moreover, Columbia Banking System is expected to earn $2.44 per share this year, which would be 37.1% more than in 2023.

First, the company completed its merger with Umpqua Holdings Corporation. As a result, the new entity is now one of the top 30 U.S. banks that has a significant footprint in the Western U.S.

In the Northwest region of the country, the Columbia Banking System lags behind some of the largest financial institutions in the world, such as Bank of America (BAC) and JPMorgan Chase (JPM), in terms of market share. This puts it ahead of many other smaller banks in the region.

The Columbia Banking System also has a presence in some of the largest cities in its regions, including Los Angeles, Seattle, and Phoenix, giving it a broad group of potential customers.

The company also benefits from higher projected population growth in its service area as well as higher household incomes compared to the national average.

Competitive advantages

Columbia Banking System is relatively small even after the merger with Umpqua. However, this does not mean that it is without the ability to grow its business.
While the company already has a large footprint in its core areas of operation, there is room for further expansion.

Columbia Banking System controls only a fraction of the available market share in its leading markets. The key part is that the company has not overextended its footprint, as its market share is only 8.5% in Portland, 5.2% in Seattle, and 0.1% in Los Angeles. These markets are very large and the company has room for further expansion.

Columbia's banking system has barely expanded in other regions such as Arizona and Colorado. Phoenix and Denver are two areas where the company could meaningfully gain market share. These two are among the company's largest areas of operation based on population and overall market share.

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The information in this article is for educational purposes only and does not serve as an investment recommendation. The authors present only facts known to them and do not draw any conclusions or make any recommendations to the reader.

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