Columbia Banking System, Inc. Q2 FY2025 earnings call

Key Points

• Second quarter operating results up 14% from year ago quarter, driven by focus on profitability, balance sheet optimization, and operational efficiency initiative. Net interest margin expanded, core fee income increased, expenses disciplined, and credit metrics healthy.
• Loan portfolio had slight growth with commercial loan growth offsetting transactional real estate runoff. Collaboration across teams enabled winning business and attracting new relationships.
• Anticipated seasonal deposit declines due to tax payments and owner distributions, but recent campaign brought over $450 million in new core deposits.
• Acquisition of Pacific Premier on track with overwhelming shareholder approval, expected to close as early as September 1. Integration planning on track with minimal impact on current operations.
• Investment in tech stack remains priority with 83 platforms/solutions using AI. Enhanced embedded banking capabilities, and recent branch openings in Phoenix, Mesa, and Eastern Oregon.
• Brand unification with Umpqua Bank changing legal name to Columbia Bank, to do business publicly under Columbia Bank name from September 1.

Net interest margin expanded. Core fee income saw a meaningful increase. Loan portfolio was slightly up at quarter end, with commercial loan growth offsetting intentional runoff in transactional real estate loans. Deposit balances declined during the second quarter due to seasonal activities and customers using cash for business investments/debt paydown. In terms of revenue contribution, details like net interest margin expansion, core fee income growth, and loan portfolio composition contribute to the overall financial picture.

• Acquisition of Pacific Premier expected to close as early as September 1.
• CET1 and total capital ratios well above long-term targets, expect acquisition to enhance capital generation capabilities and flexibility to return excess capital.
• Integration of Pacific Premier has minimal impact on current operations, with ~2% of associates focused on integration.

• Macroeconomic uncertainty around tariffs causing companies to pivot, which may create varying borrowing needs and elongated pipelines.
• Potential risks associated with integrating Pacific Premier, though currently minimal with only ~2% of associates focused on integration.

Q: Start on growth side and loan side, driving factors for originations?

A: Combination of newer markets activity, bankers' excitement, and utilization of cash; pipeline strong with good momentum on C&I front.

Q: Thoughts on Pacific Premier balance sheet optimization ahead of close?

A: Look to take advantage of day 1 fair value marks, pre-purchased some securities fitting portfolio, and actively looking at scenarios with 0 credit concerns.

Q: Initiatives on fee revenue contributions and Pacific Premier's role?

A: Predictive analytics program with 50% closure rate, full relationship review process, working capital assessments; Pacific Premier brings opportunities in custodial trust, HOA banking, Escrow, 1031 Exchange, commercial card, treasury management, etc.

Q: Accretion and modeling of interest income?

A: Utilize yields from the quarter and Slide 24 in deck for repricing; income core driven by rate not credit.

Q: Securities growth, borrowings related to PPBI deal and future balances?

A: Added $600 million of par, ~$500 million of books, used wholesale funds, will pay off post close once selling proportion of portfolio.

Q: Deposit growth outlook, pricing strategy?

A: Second quarter seasonal, normal resurgence expected in Q3; competitive with rates, active process considering portfolio and flows, CD pricing solid, focus on full relationship banking.

Q: Appetite for cleaning up capital stack from legacy Umpqua?

A: Prefer clean capital stack, expect excess capital generation to accelerate with Pacific Premier acquisition, providing flexibility to optimize.

Q: Time line for purging $6 billion of transactional assets?

A: Depends on rate environment; repricing and runoff over time, earning headwind currently, but will lead to more profitable institution.

Q: Margin, timing of securities yield bump and June margin?

A: Securities yield bump, Q3 expected to have lift from full quarter margin; month of June margin would have been 3.79% adjusted for timing differences.

Q: Expense base pre-PPBI?

A: $270 million firm number, but investment in Intermountain states delays actual spend, so expense range for '25 adjusted.

Q: Balance sheet size, pro forma earning asset base, and margin post-PPBI?

A: At close, will net sell $0.5 billion of PPBI bonds, mid-60s earning asset base reasonable; margins increased compared to 90 days ago, more a function of NIMs in deal math.