COLUMBIA BANKING SYSTEM, INC. Q1 FY2025 earnings call

Key Points

• First quarter results: EPS, operating metrics, deposit growth, and loan origination details.
• Branch expansion: Opened first retail branch in Colorado in March, with plans to fine-tune branch footprint and expand in opportunities.
• Pacific Premier acquisition: Columbia will become a $70 billion assets franchise, with complementary footprints, financial attractiveness, and cultural compatibility. Expected 14% EPS accretion in 2026 and 15% in 2027, with minimal impact on capital ratios and no need for additional capital. Alignment in credit culture, operating philosophies, and low execution risk in integration.
• Disciplined cost culture: Maintained cost discipline while reinvesting in the franchise.

In the first quarter, Columbia reported EPS of $0.41 per share, with operating EPS of $0.67 excluding certain items. Operating return on tangible equity was 15%, and operating PPNR was $212 million. Customer deposits grew by $440 million during the quarter, offsetting typical seasonal contraction. Loan origination volume was up 17% from Q1 2024, but total loan balances were relatively flat at quarter end due to higher prepayment and payoff activity and the focus on reducing transactional real estate loans from the balance sheet.

Forward-Looking Statements

• Expected 14% EPS accretion in 2026 and 15% in 2027 based on consensus estimates.
• Projected 7.6% of tangible book value dilution and a three-year earn-back period.
• No need to raise additional capital due to Pacific Premier's excess capital position.

Risks

• Market volatility and macro uncertainty could impact financial results.
• Execution risk in merger integration, though considered low due to limited overlap and similar cultures.

Q: Chris McGratty asks about experience from the Umpqua deal and regulatory angle on CRE concentration.

A: Clint Stein responds about M&A experience, noting similar cultures and processes, and discusses regulatory process expectations for the Pacific Premier acquisition, stating CRE concentration will likely decrease through runoff of transactional portfolios.

Q: David Feaster inquires about value creation from the Pacific Premier deal and credit underwriting comfort.

A: Tory and Chris discuss Southern California market opportunities, complementary products, and Frank Namdar confirms strong credit underwriting alignment between the two banks.

Q: Matthew Clark asks about buyback plans and potential divestitures post-Pacific Premier deal.

A: Clint Stein discusses buyback timing being pushed due to the acquisition, and mentions potential balance sheet remix but no immediate divestiture plans.

Q: Timur Braziler asks about merger closing timeline and credit mark methodology.

A: Clint Stein and Steve Gardner discuss regulatory approval expectations and quicker closing timelines, while Ron Farnsworth explains credit mark methodology based on diligence and economic forecasts.

Q: Jon Arfstrom asks about earnings confidence and merger readiness.

A: Clint Stein and Tory discuss strong pipelines and momentum, with confidence in hitting consensus estimates and no significant delays due to the Pacific Premier deal.

Q: Jared Shaw asks about CRE concentration reduction and cultural integration.

A: Clint Stein and Tore discuss CRE concentration reduction through portfolio runoff and cultural alignment in incentive structures and values.

Q: Jeff Rulis asks about branch expansion and M&A for other markets.

A: Clint Stein states branch expansion plans continue, and the Pacific Premier deal allows pivoting focus to other markets for growth.

Q: Anthony Elian asks about balance sheet growth and PAC Premier's growth strategy.

A: Clint Stein discusses balance sheet growth considerations, including runoff of transactional portfolios, and Steve Gardner explains the attractiveness of the deal for shareholder returns.

Q: Andrew Terrell asks about margin guidance and bond portfolio impact.

A: Ronald Farnsworth discusses margin expectations influenced by deposit flows and bond portfolio dynamics, with potential for margin improvement with stable market conditions.

Q: Nick Coloco asks about M&A weighing and regulatory alignment.

A: Clint Stein explains the strategic fit of the Pacific Premier deal due to cultural and operational alignments, and discusses regulatory alignment and deal timing alignment with star alignment.