Columbia Banking System, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Columbia Banking System's second quarter 2019 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 star zero. As a reminder, this conference is being recorded. I would now like to turn the call over to your host for today, Hadley Robbins, President and Chief Executive Officer of Columbia Banking System.

Thank you, Carol. Good morning, everyone, and thank you for joining us on today's call as we review our second quarter 2019 and near-to-date results, which were released before the market opened this morning. The earnings release and supplemental slide presentation are available at ColumbiaBank.com. As a result of strong efforts by our lending and credit teams, second quarter earnings were a new record, and quarterly earnings exceeded $50 million for the first time in our history. On a year-to-date basis, net income was $98 million, which was 19% higher than the first half of 2018. Capital levels also remained strong and well above regulatory targets. It was a very busy quarter. Our lending teams generated the second-best production quarter ever, narrowly missing the record set last year by only $8 million. Our Special Act Credits team completed the work out of a few trouble bones, which added nearly $5 million of interest income and reduced non-performing assets 31 basis points, a low not seen for some time. Our back office teams are also heads down implementing key technology projects that include new digital banking platforms. Our second quarter deposit mix remains stable and the core deposit ratio was strong at 96%. The total cost of deposits also continues to be well managed at 20 basis points for the quarter and 19 basis points for the year. We did see a reduction in overall deposits during the second quarter. This is typically a seasonal low point of activity for us. One of the other contributing factors impacting overall deposit levels was our efforts to help those clients seeking higher yields by moving cash from traditional accounts to our brokerage and other alternative offerings. On the call with me today are Greg Zegrist, our Chief Financial Officer, who will provide details about our earnings performance and an overview of our share repurchase plan. Clint Stein, our Chief Operating Officer, who will review our production activity and highlight the status of some of our digital investments, and Andy McDonald, our Chief Credit Officer, who will review our credit performance. 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, which are subject to economic and other factors. For a full discussion of the risks and uncertainties associated with the forward-looking statements, Please refer to our securities filings and, in particular, our 2018 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 morning, everyone. Second quarter earnings of $51.7 million in EPS of 71 cents per diluted share was an increase of 8 cents from the first quarter and an increase of 14 cents compared to the second quarter of 2018. As Hadley mentioned, The operating net interest margin of 4.38%, which was up five basis points on a length quarter basis, benefited from $4.9 million of loan interest recoveries on non-accrual loans. Partially offsetting this was a $650,000 true-up of an interest accrual as we took advantage of short-term FHLV borrowing rates earlier in the year. The net impact of these two items was nearly 15 basis points. Offsetting drivers included a seven basis point impact from the seasonal funding mix shift we experienced given typical second quarter deposit flows and a two basis point impact from deposit rate increases in the first quarter. As you've heard us say for the past six quarters, we are actively managing our exposure to a declining rate environment through the ALCO strategies put into place beginning in late 2017. As a reminder, those strategies include taking additional duration in the loan portfolio, growing the balance sheet approximately $500 million by purchasing securities that would respond well in a down-rate environment than the $500 million derivative zero-cost collar strategy put into place early in the first quarter. However, we are not completely immune to a declining rate environment. A 25 basis point rate cut would be expected to reduce quarterly net interest income by $4 million in the first year. On a linked quarter basis, Non-interest income increased by $4 million to $25.6 million, mostly due to bullied benefits of $3 million. Loan revenue was up $1.2 million on the strength of CNI production. Our expense run rate remains well controlled, with non-interest expense of $86.7 million increasing quarter on quarter, largely due to increased digital investments. This is in line with what we shared at the last earnings call, that quarterly operating interest Operating Expenses, excluding the impact of our digital investments, would continue in the mid-80s. Excluding acquisition costs of $7.1 million in the first half of 2018, non-interest expense is up $8 million or 5% on a year-over-year basis. Half of the increase is from digital initiatives with remainder from compensation and incentive expenses. In the second quarter, we incurred $2.9 million of expenses that was directly related to our digital initiatives. We expect the digital investment impact to non-interest expense to be in the $6 to $8 million range for the balance of the year. Our effective tax rate was 19% for the quarter and the year, and it should continue to be in the 19% to 20% range for the remainder of the year. With regard to our share buyback program, we intend to continue to repurchase shares as part of our capital strategy, provided we feel it is advantageous to our shareholders to do so We have a strong capital position and will balance buybacks with special dividends and strategic opportunities in the future. At this point, I'd like to turn the call over to Clint.