By:
Matthew Prinske, AIM Student at Marquette University
Disclosure: The AIM
Equity Fund currently holds this position. This article was written by myself,
and it expresses my own opinions. I am not receiving compensation for it and I
have no business relationship with any company whose stock is mentioned in this
article.
Summary:
•
Columbia Banking System (NASDAQ:
COLB): provides financial
services through personal, business, commercial banking, and wealth management
services. The firm operates all of its
156 branches in the Pacific Northwest of the United States. Columbia
was founded in 1988 and is headquartered in Tacoma, WA.
•
Columbia was seeing issues with the achieving synergies from the acquisition of
Pacific Continental Corporation, specifically within employee salary and
benefit compensation.
•
Columbia will pay a special dividend on top of their regular quarterly dividend
which will yield 4.5% as of market close on 4/29/19. This is significantly higher that industry
average.
•
Columbia just beat earnings expectations on April 25th by reporting
earnings of $0.61, one cent higher than consensus estimates.
•
COLB is trading $2.00 shy of the consensus price target, and has outpaced the
A.I.M. price target of $18.50.
Key points:
Columbia Banking System remains in
the middle of one of the strongest areas of the United States. Operating in the Pacific Northwest lends the
bank to being spurred by technology growth in the area. Strong earnings for tech has helped Columbia
rally from their 52 week low in late March.
Management
has made it clear that significant amount of resources are being placed into
online banking for the time being. There
has been tremendous lift in the online banking sphere since the company rolled
out a new consumer online banking platform that was released in July 2017. This has lifted online deposit growth by
nearly 40%.
Management
issued a significant special dividend of $0.14, on top of the regular dividend of
$0.28. This represents a payout ratio of
67%. Management stated that stock
buy-back are unlikely unless there is a significant downward change in the
stock price.
COLB
ticked up their loan to deposit ratio about 2.5% over the last quarter to just
over 82%. This increase in loan to
deposit ratio keeps COLB in what is often considered the ideal range. The bank has been able to grow deposits well
under low interest rates and will likely maintain a wait and see outlook due to
the current uncertainty of interest rate movements.
What has the stock
done lately?
COLB
is trading directly in the middle of their 52 week high-low. The stock is up
2.25% on the year after trading down to their 52 week low of $30.65 in late
March. Columbia is trading at a P/E multiple of 15.96, significantly down from
nearly 20 times earnings in Q3 of last year.
Past Year
Performance:
The
stock has traded volatilely over the last 52 weeks. The largest drop offs were at a missed
earnings in April, the market correction in October, and most recently the
market correction in December. After each drop the stock recovered – but not
fully – to the pre correction price. The
company has beat earnings for the first time in over 4 quarters and is trading
up on a special dividend.
Source: FactSet
My Takeaway:
Management
has positioned the loan to deposit ratio of this bank well and maintains excess
capacity to continue loan growth. The
current payout ratio of the bank is slightly higher than one may like to see as
there might not be significant growth projects available to the bank.
Source: FactSet
