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Key drivers of gross margin improvement for Columbia Banking System in Q1 2026

Because the provided excerpts do not explicitly define or quantify “gross margin” as a specific GAAP/non-GAAP metric in the way a typical industrial company would, the analysis below focuses on the bank’s margin-like operating levers that drive improvement in gross profitability—primarily net interest margin (NIM) and the revenue/expense mix (i.e., operating efficiency and cost savings realization) that flow into higher pre-provision revenue and margins. The Q1 discussion repeatedly links improvement to (1) balance-sheet optimization and asset/liability repricing mechanics and (2) disciplined expense management and acquisition integration cost savings.

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1) Net interest margin (NIM) improved via balance-sheet optimization and portfolio “remix”

Columbia reports NIM of 3.96% in Q1 2026, described as “right at the top end of the range” from the prior call, with a discussion of the sequential drivers. ¹
Management also explains that while the “headline net interest margin” was down vs. the prior quarter, the prior-quarter NIM included a favorable 11 bps impact from amortization of a premium on acquired time deposits and an accelerated loan repayment, implying the underlying trend was less negative sequentially. ²

Relative to 2025, management states NIM expanded by 36 basis points, attributing it to its balance sheet optimization strategy, and notes Q1 as the “low watermark for 2026.” ²

What specifically improved the margin mechanics in Q1:

• Columbia saw a repricing run-down of low-coupon, low-duration transactional loans (additional $230 million of run down in Q1), with those balances moving off roughly the low- to mid-4% range and being replaced by core relationship lending with “a six handle” (i.e., higher yield relationship lending). ³
• Management also highlights deposit/funding discipline as part of this margin picture, including lower cost of interest-bearing deposits: Q1 “spot-to-spot” cost of interest-bearing was 2.04%, down 16 bps from Q4, with further 8 bps decreases during the quarter without Fed funds actions—linked to CD pricing discipline and relationship-based deposit evaluation. ³

Why this matters for gross profitability: for a bank, higher NIM (driven by asset yield/repricing and funding cost discipline) is the most direct driver of margin expansion.

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2) Maintaining/reinforcing the deposit mix despite seasonality (reducing reliance on wholesale funding)

In Q1, management describes offsetting seasonal pressures (typical deposit outflows and heavier wholesale funding reliance) with improved mix and optimization. ³

Specifically:

• Even though Q1 seasonality increased average reliance on brokered and FHLB relative to Q4 by about 7%, Columbia says balance sheet optimization and transactional loan repricing counteracted the headwind, keeping the deposit/margin outcome stable vs. past years. ³
• Management also reports customer-driven deposit growth: customer balances increased by $110 million as of March 31 and deposit campaigns were active, including nearly $450 million in new balances through mid-April. ⁴
• Gross margin-like profitability improves when higher-yield assets are funded with cheaper, more stable deposits. Management reinforces this by stating they reduced reliance on wholesale funding as customer deposit balances expanded, and provides a magnitude: wholesale funding declined by $560 million from December 31 (with seasonality driving higher average wholesale reliance during the quarter). ⁵¹

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3) Acquisition integration and cost discipline: expense management supports higher profitability and margin

While NIM is the core “margin” driver, Columbia also emphasizes that operating profitability improved due to disciplined expense management and cost savings realization from acquisition integration.

• Management states that pre-provision net revenue and operating net income increased 45% and 50%, respectively, compared to 2025, “due to the addition of Pacific Premier,” continued progress on balance sheet optimization, and “disciplined expense management.” ¹
• On operating expenses, management reports noninterest expense of $369 million on an operating basis in Q1, and that excluding intangible amortization, the $328 million run rate was below the guided range due to “earlier realization of cost savings following January’s system conversion” and planned investments shifting into Q2. ⁶
• The synergy realization is explicitly quantified: as of March 31, Columbia achieved $102 million of targeted $127 million in synergies, though savings were “not fully run-rated” in Q1. ⁶

Integration milestone linked to cost savings timing: Columbia says it “completed the Pacific Premier systems conversion and consolidated nine branches during the quarter,” and is “on track for full realization of all acquisition-related cost savings by the end of this quarter.” ⁵

Even though this is not labeled “gross margin” per se, lower operating expense growth relative to revenue (especially with recognized synergies) raises gross profitability before credit costs—consistent with margin improvement.

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4) Revenue/mix support from loan and fee growth (relationship lending and core fee expansion)

Gross margin improvement is also supported by mix shift toward higher return relationship lending and stronger core fee income contribution.

• Columbia reports new loan origination volume of $1.2 billion, up 38% year over year in Q1, and says the commercial loan portfolio increased 6% annualized, contributing to “continued remix… toward higher return, relationship-based lending.” ⁴
• Management ties operating momentum to C&I strength: “solid C&I production offset a decline in below-market-rate transactional loan balances,” and it calls out “bankers’ proven ability to generate balanced, relationship-centric growth in deposits, loans, and quality fee income.” ⁵⁴
• Fee/income progress is described in the noninterest income discussion: noninterest income was $83 million GAAP and $81 million operating, with the sequential decline due to lower swap syndication and international banking revenues; however, management states operating noninterest income is up $25 million (44%) vs. 2025 due to Pacific Premier impact and “strong growth in fee income streams.” ²
• Management further describes exceptional growth in “financial services and trust revenue, treasury management, commercial card, merchant income,” and other recurring customer fee business (operating noninterest income grew significantly between 2025 and 2026). ⁷

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Bottom line (most cited Q1 drivers)

Across the excerpts, the most direct and consistently emphasized drivers of margin-like gross profitability improvement in Q1 2026 are:

1. NIM expansion vs. 2025 (+36 bps) driven by balance sheet optimization, including transactional loan repricing/rundown and replacement with higher-yield relationship lending. ²³
2. Deposit/funding mix improvement—deposit campaigns and customer inflows offset seasonality, while wholesale funding and deposit pricing discipline lower funding costs (interest-bearing cost 2.04% in Q1, down 16 bps spot-to-spot). ⁴³⁵
3. Acquisition-related cost savings and expense discipline, including earlier systems-conversion cost savings and $102M of $127M synergies achieved as of March 31 (with full realization targeted by quarter end). ⁶⁵
4. Revenue mix enhancement from strong C&I origination (+38% YoY) and remix toward relationship lending, plus 44% operating noninterest income growth vs. 2025. ⁴²⁵