Columbia Banking System, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Columbia Banking System's fourth quarter and full year 2018 earnings release conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session through both the telephone and web. Instructions will be given at that time. If you are on the telephone and should require assistance during the conference, please press bar zero. Thank you, Omar. Good afternoon, everyone, and thank you for joining us on today's call as we review our fourth quarter in 2018 four-year results, which we released before the market opened this morning.

and a supplemental slide presentation are available on our website at ColumbiaBank.com. 2018 was a landmark year for Columbia Bank. It was a year in which we celebrated our 25th anniversary and completed the integration of Pacific Continental, which has been our most significant acquisition to date. Through the hard work of everyone across the organization, 2018 was a year of record net income and record levels of loan production. Overall, Our business model performed well. We did face stiff headwinds with regard to net loan growth. Record production for 2018 of $1.4 billion was offset by unusually high levels of pay downs and prepayments during the year. Activity related to loans $2 million and above was led by business sales and the sale of commercial real estate. loans exited or charged down for credit reasons, competitive pricing or structure requests outside of parameters, followed by payoffs tied to non-bank competitors, namely credit unions and the Farm Credit Administration. We also saw a more pronounced seasonal reduction in line utilization in the fourth quarter. Looking into 2019, economic fundamentals continue to support the expectation for favorable business conditions in the Northwest Nonetheless, we have noticed that the pace of economic activity has started to moderate. Business owners remain challenged in finding workers due to tight labor markets and are concerned about the future trajectory of interest rates, trade relations, and the growing risk of recession. The recent government shutdown has created additional uncertainty. At this time, the impact of the shutdown on most businesses in our footprint is anticipated to be temporary and small relative to the overall economy. continue to believe economic conditions in 2019 will support positive loan demand and expect solid levels of production in the coming year. However, a 2019 outlook for net loan growth is tempered by uncertainty related to the volume of future payoff activity, which has declined modestly over the last two quarters. By 2019, we expect to generate meaningful levels of capital. Our total capital today is robust at nearly 14%. Capital generated in excess of the amount required to support organic loan growth will be available to invest in technology, increase dividends, potentially fund share buybacks, or be allocated to strategic M&A should the right opportunity arise. At this time, we're pleased to increase our regular dividend to $0.28 per share and maintain our special dividend at $0.14 per share. On the call with me today are Greg Zegrist, our Chief Financial Officer, who will provide details about our earnings performance, Clint Stein, our Chief Operating Officer, who will review our production activity, and Randy McDonald, our Chief Credit Officer, who will review our credit quality information. Following our prepared comments, we'll be happy to answer your questions. It's important that I remind you that we'll be making forward-looking statements today. For a full discussion of the risks and uncertainties associated with the forward-looking statements, please refer to our securities filing, and in particular, our 2017 SEC Form 10-K. At this point, I'd like to turn the call over to Greg to talk about our financial performance.

Thank you, Hadley, and good afternoon, everyone. 2018 was a strong year for us. as a record full-year earnings of $172.9 million and ETFs of $2.36 shows. We did see the benefit of both the larger interest earning balance sheet from our Pacific Continental acquisition and the rising rate environment. As you know, our deposit data has held up quite well. Given the seasonality we typically experience across loans, deposits, and our expense base, the full year really tells the story of our ability to effectively deliver increases in shareholder value. We also reported fourth quarter earnings of $44.7 million and EPS of 61 cents. Pre-tax acquisition related expenses of $493,000 in the fourth quarter and $8.7 million for the year negatively impacted EPS by 1 cent and 12 cents respectively. The net interest margin was essentially flat on a linked quarter basis as our leverage strategy mitigated the benefit of the Fed's rate increase at the end of September. Our leverage strategy is an important component of our broader balance sheet management strategy, which is intended to reduce our exposure to falling interest rates. On a year-over-year basis, tax-equivalent net interest income increased by $107 million, or 28%, due to the full-year impact of the Pacific continental acquisition and the rising rate environment. The cost of interest-bearing deposits rose by five basis points on a linked quarter basis, and is up 12 basis points for the year, driven by selected repricing of interest-bearing deposits. We are actively managing our deposit product offering, balancing market pressures and client relationships. Our deposit mix remains stable with 50% in non-interest-bearing products. This structural advantage kept our cost of total deposits very low at 15 basis points. Non-interest income declined by $617,000 in the fourth quarter, given lower levels of prepayment penalties. We also saw modest increases in deposit account fees and financial services revenue. Card revenues were essentially flat on a linked quarter basis and came in as expected due to Durbin Amendment interchange rate caps implemented effective July 1st. As we mentioned earlier, acquisition-related costs in the quarter were $493,000, which compares to $1.1 million in the prior quarter. Transition and retention agreements were responsible for most of these costs. As of December 31st, all Pacific Continental acquisition costs have been expensed and overall were $4.3 million or 14% less than our original forecast. In addition, we achieved our projected cost saves ahead of schedule. After removing the effect of acquisition-related expenses, our core non-interest expense was up $4.8 million on a linked quarter basis. Implementation and consulting costs related to our digital strategy contributed $1.4 million of the increase. We also saw an $840,000 increase in our self-funded group insurance driven by elevated medical claims experience and a $600,000 increase driven by an additional day of payroll in the fourth quarter. Looking ahead, we do typically see seasonal increases in the first quarter related to bonus payouts, including a discretionary 401k employer match and increased employer payroll taxes as caps reset. We would expect our non-interest expense, inclusive of our anticipated digital spend, to be in the high 80s in the first quarter. Although we do expect elevated spend on digital going forward, we believe that spend is manageable in relation to our ability to generate earnings and accrete capital. Many of the decisions that will frame the exact amount and timing of that spend lie ahead of us. We will continue to update you each quarter. Our quarterly core non-interest expense ratio, which excludes acquisition-related costs, was 2.67% compared to 2.55% on a linked quarter basis. And for the full year, it was 2.61%, which improved from 2.67% in 2017. Our operating efficiency ratio was 58.1% as compared to 54.8% on a linked quarter basis. For the full year, the operating efficiency ratio was 56.6%, up from 56.1% in 2017. Our effective tax rate was 19.3% for the fourth quarter as compared to 19.7% in the prior quarter. And our effective tax rate is in the range we would expect for a full year, which is 19 to 20%. At this point, I would like to turn the call over to Clint to talk about our production activities.