Columbia Banking System, Inc. Q3 FY2025 earnings call

• Successfully closed the strategic acquisition of Pacific Premier on August 31, completing an 8-state Western footprint and bolstering position in the Northwest with ~$68B in assets.
• Third quarter operating PPNR up 12% QoQ and 22% YoY, driven by focus on profitability, balance sheet optimization, and 1 month of Pacific Premier.
• Strong customer deposit growth and higher loan origination volume during the quarter. Teams are remixing the balance sheet, allowing transactional portfolios to run down and transferring some residential mortgages to held for sale.
• CFO Ron Farnsworth's last earnings call; Ivan Seda appointed as new CFO. Board authorized a $700M share repurchase program due to excess capital and strong forward outlook.
• Integration of Pacific Premier is ongoing, with former Pac Premier branches making referrals to new products and services, and benefits like custodial trust services and HOA banking expertise being realized.

Columbia's operating results for the third quarter showed consistent performance. Operating PPNR was up 12% from the second quarter and 22% from the year ago quarter. Customer deposits grew strongly, and loan origination volume was meaningfully higher. The acquisition of Pacific Premier, completed on August 31, added scale, with the combined entity having approximately $68 billion in assets. Pacific Premier contributed 1 month of results in the third quarter. Revenue contribution from Pacific Premier included items like custodial trust services. The tangible book value per share increased slightly to $18.57, and regulatory capital ratios expanded, with Tier 1 common at 11.6% and total risk-based capital ratio at 13.4%.

• Board authorized a $700 million share repurchase program, reflecting confidence in the balance sheet's strength. The program is a 12-month initiative with flexibility for macro environment uncertainty.
• Anticipate continued strong profitability leading to meaningful capital generation over coming quarters. The 3-year earnback at announcement for tangible book value dilution from Pac Premier acquisition is now expected to be less than 1 year.
• Expect net interest margin to expand further, with factors like customer deposit growth and balance sheet optimization driving this.

• Potential macroeconomic volatility that could impact the share repurchase pace and overall performance. Seasonality in deposits that may cause fluctuations in balance sheet funding. Merger-related expenses that could have tail effects in the near term, such as system conversion costs in Q1.
• Credit risks associated with the run-down of transactional loan portfolios and potential impact on the allowance for credit losses if economic conditions change.

Q: Chris McGratty of KBW asked about the pace of the share buyback and balancing act with balance sheet optimization.

A: Clint Stein said the program is 12 months with flexibility for macro uncertainty, and Ivan Seda added details on excess capital and expected profitability driving the buyback pace.

Q: David Feaster of Raymond James asked about reactions to activist investor piece.

A: Clint Stein stated priorities are consistent top-tier performance, capital returns including buybacks, and focus on Pac Premier integration.

Q: David Feaster asked about deposit growth drivers.

A: Tory Nixon and Christopher Merrywell mentioned ~30% of deposit growth from new customers, de novo offices contributing ~$150M, and retail deposit campaigns bringing in ~$180M in new customer deposits.

Q: David Feaster asked about driving earnings growth without balance sheet growth.

A: Clint Stein explained remixing transactional loans into relationship-based loans with fee income opportunities and better funding, leading to revenue growth without significant balance sheet expansion.

Q: Matthew Clark of Piper Sandler asked about Q4 NIM expectations.

A: Ivan Seda said Q4 NIM expected to be just north of 3.90% due to deposit premium accretion, with Q1 having a similar range but considering seasonality and earning asset changes.

Q: Jared Shaw of Barclays asked about allowance level and merger charges.

A: Christopher Merrywell said allowance level may slowly migrate upward, and Ron Farnsworth mentioned additional merger expenses in coming quarters for system conversions.

Q: Jon Arfstrom of RBC asked about sustainable return on tangible.

A: Clint Stein said absent macro issues, they expect to continue high teens return on tangible, aiming for top decile performance.