Columbia Banking System Inc.

An offsetting factor is uninsured deposits (32% of the total, including collateralized public funds as of Sept. 30, 2023) are below the roughly 40% median for the U.S. banks we rate, with available liquidity covering 142% of Columbia's uninsured deposits as of Sept. 30, 2023. However, Columbia has more noninterest bearing deposits than most (37% of total deposits). A portion of these deposits may shift to interest-bearing accounts or higher-rate alternatives, outside the bank, leading to somewhat further stress on funding costs. We expect Columbia to remain solidly profitable with accretion income to support capital build-up, given management has suspended share repurchases and have none planned for the remainder of the year. The negative outlook reflects our view that heightened

...Although the merger integration is largely complete, there are still execution challenges. Columbia closed its transformative merger with legacy Umpqua Holdings on February 28, 2023, prior to the volatility in the regional banking sector, which makes for a more challenging execution amid funding cost pressures. The bank maintains dual headquarters in Tacoma and Portland metros, with significant executive leadership retained from both merging entities (about an equal split). Columbia's board consists of 50%/50% split of both legacy companies. Other challenges include building a uniform culture, particularly given a management team that does not have a history of working together. However, positively, synergies have been ahead of target and the systems integration was completed within the first few weeks of the merger close. In our view, Columbia's funding metrics have worsened somewhat compared with peers. We view the bank's loans to non-brokered deposits of around 96.5% as of Sept. 30,...

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