COLB's Twin Growth Catalysts: Why a 9.65x Multiple Supports a Climbing 5% Yield

Columbia Banking System has recovered strongly from recent lows, buoyed by four consecutive quarterly earnings surprises and a notably expanded market footprint following the Pacific Premier acquisition in August 2025. While analyst sentiment remains steady rather than expanding, the stock carries a Zacks Rank #3 (Hold) rating. The underlying picture reveals two powerful return drivers—dividend expansion and margin recovery—that could justify multiple re-rating as 2026 unfolds. Improving net interest margins and strategic capital deployment form the backbone of the story.

Valuation Sweet Spot: Trading Below the Group Average

At 9.65x forward 12-month earnings, COLB sits meaningfully cheaper than its banking peers at 10.46x and well below the broader finance sector at 17.25x. The stock’s valuation discount to the S&P 500’s 23.24x makes the risk-reward increasingly attractive. Historically, COLB’s five-year median trades at 9.24x—suggesting current levels offer only a modest discount to long-term norms, yet competitive pricing relative to the banking cohort amid integration headwinds.

The dividend story amplifies the appeal. Management boosted the payout by 2.8% in November 2025 to 37 cents per share, translating into a current yield near 5.0%—a compelling income stream for conservative investors. This two-pronged approach of steady growth and meaningful yield positions COLB as a balanced total-return candidate in a higher-for-longer rate environment that’s now beginning to normalize.

NIM Expansion and Synergy Tailwinds: The Real Value Driver

The near-term catalysts rest on margin improvement and successful Pacific Premier integration. Net interest margins expanded to 4.06% in Q4 2025 as deposit costs moderated and wholesale funding appetite declined. Management guidance for Q1 2026 targets a 3.90-3.95% NIM with net interest income projected at $600 million—setting the stage for sequential recovery as the year progresses.

More importantly, COLB projects NIM to climb each quarter throughout 2026, potentially surpassing the 4% threshold by mid-year. This margin inflection reflects deposit balance recovery and proactive balance sheet optimization. Operating expenses (excluding amortization) are expected to trend $335-$345 million in early quarters, then ease as Pacific Premier synergies fully crystallize. Fee income growth adds another layer, with treasury management and commercial card fees accelerating in 2025, while new Pacific Premier platforms (trust services and HOA banking) unlock meaningful cross-sell opportunities.

Capital Returns Accelerate: Dividends Meet Buybacks

Columbia Banking’s balance sheet has strengthened considerably, enabling a two-pronged capital return strategy. With nearly $600 million remaining under the repurchase authorization, management plans to deploy $150-$200 million quarterly throughout 2026. Combined with the recent dividend bump, this capital allocation philosophy should support per-share earnings growth independent of organic income expansion.

Capital ratios moved higher across 2025, providing flexibility for elevated buyback activity without straining regulatory ratios. This disciplined approach to returning cash—balancing dividend growth with opportunistic share repurchases—has historically driven outperformance when paired with margin expansion.

Headwinds Worth Monitoring: Integration and Credit Risks

The bull case hinges on flawless Pacific Premier integration execution. Restructuring costs remain elevated near-term, and expense volatility will likely persist until all synergies fully materialize. Additionally, competitive deposit pricing across COLB’s Western markets could suppress NIM upside if pressure re-intensifies—a real threat in a prolonged low-rate regime.

Credit quality remains generally sound, yet specific pockets warrant attention. FinPac small-ticket leasing posted elevated loss content in Q4 2025, and office loan exposure totals roughly 8% of the portfolio—pointing toward category-specific stress even as non-performers remain contained. These factors suggest credit headwinds aren’t systemic but demand close quarterly monitoring.

The Peer Backdrop: Relative Positioning Matters

East West Bancorp trades at a higher 11.12x forward multiple despite sharing COLB’s Zacks Rank #3 status, while Banner Corporation carries a similar ranking but sits at 10.59x. COLB’s 9.65x valuation reflects a reasonable discount to EWBC, accounting for integration noise and competitive dynamics. Yet versus BANR, the gap narrows considerably—suggesting COLB’s discount is real but not extreme when contextualized against peer valuations and near-term execution risks.

The Bottom Line: Hold Remains Prudent for Patient Investors

At 9.65x forward earnings paired with a ~5% dividend yield, COLB presents a balanced near-term proposition. Clear execution on margin expansion, Pacific Premier synergies, and the promised buyback pace should support multiple expansion as 2026 advances. Integration complexity, deposit pricing pressure, and emerging credit stresses represent the key variables to monitor going forward. For income-focused investors willing to accept near-term volatility, the risk-reward environment justifies a strategic entry, while existing holders have reason to remain engaged through the integration cycle.