Columbia Banking System, Inc.

Thank you for standing by. Welcome to the Columbia Banking System first quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct the question and answer session through the web and telephone. 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, Clint Stein, President and Chief Executive Officer of Columbia Banking System.

Thank you, Tamara. Good morning, everyone, and thank you for joining us on today's call as we review our first quarter results, which we released before the market opened this morning. The earnings release is also available at ColumbiaBank.com. I want to begin the call today by thanking our 2,200 bankers who despite tremendous disruption to their professional and personal lives have joined together to support each other and serve our customers, communities, and shareholders as the COVID-19 pandemic has evolved. The Puget Sound region entered into the pandemic earlier than other parts of the U.S. with the first coronavirus deaths reported on February 29th. We developed a detailed pandemic plan many years ago and most recently tested it through a bank-wide exercise in December of 2018. It's a phased plan and we began to execute against the first phase in early January. Since then, we've continued to follow our plan, proactively planning for additional escalation at predetermined trigger points. Early on, our bankers were in direct communication with our clients to understand their individual challenges and work through options to provide relief for their businesses and families. We're a community bank at heart, and I believe that our bankers' empathy, compassion and support has and will continue to be our most valuable currency. Columbia Bank is well positioned to handle the impact of COVID-19 and its ensuing market disruptions. This is different from the Great Recession of 2008 and 2009, and then it's not a financial crisis but a public health crisis with serious economic ramifications that are still evolving. The strength of our balance sheet, credit profile, liquidity and capital position along with our proactive interest rate risk strategies and sensible expense management will serve us well as we weather the economic consequences of COVID-19. We started off the year with tremendous momentum and you can see the impact throughout our financial statement line items. EPS declined by 44 cents on a linked quarter basis due to the related credit loss provision expense of $41.5 million. On a pre-provision basis, this was the fifth best quarter in our history in what is typically our seasonally weakest quarter. While net income and EPS were significantly impacted by the CECL provision expense, Our bankers remained outwardly focused and produced strong loan and deposit growth during the quarter while reducing non-interest expenses. Absent the impact of COVID-19, it would have been an outstanding quarter. On the call with me today are Eric Eyde, who until this past Monday was our Interim Chief Financial Officer, Chris Merrywell, our Chief Operating Officer, and Andy McDonald, our Chief Credit Officer. Following our prepared remarks, we'll be happy to answer your questions. Let me remind you that we may make forward looking statements during the call. For further information on forward looking comments, please refer to either our earnings release, our website, or SEC filings. At this point, I'll turn the call over to Eric.

Thank you, Clint. First quarter earnings of $14.6 million and earnings per share of $0.20 included a CECL Day 2 provision for credit losses of $41.5 million. After factoring out the significant provision expense, quarterly pre-tax earnings were our best first quarter on record. Pre-tax pre-provision income was $59.4 million and was $1.3 million higher than the first quarter of 2019. Net interest income for the first quarter was $122.4 million, a decrease of $2.4 million on a linked quarter basis, and an increase of $1.4 million from first quarter 2019. The linked quarter decline in net interest income was due to lower loan income from the reduction in the interest rate environment, one day less of earnings, and an increase in interest paid on FHLB advances. This was partially offset by $1.9 million of interest income and discount accretion related to the early payoff of three securities. The increase in short-term funding costs was mostly due to a decline in average deposits, although period-end deposits increased during the quarter. The operating NIM of 4.02% was down 7 basis points on a linked quarter basis, primarily due to lower loan yields. Our cost of deposits continued to be industry-leading at 14 basis points, down 7 basis points on a linked quarter basis. Total deposits ended the quarter at $10.8 billion, up $128 million from year end, primarily due to an increase of $105 million of public funds. Our typical seasonal pattern is for little to no deposit growth in the first quarter. At March 31st, 49% of our loan portfolio was fixed, 16% was at floors, with another $500 million, or 6%, protected by our interest rate caller. The result is 71% of our loan portfolio is protected from further rate declines. Our liquidity position continues to provide us balance sheet capacity to meet funding needs. Overall, we have access to $4.5 billion of liquidity, primarily through our $3.5 billion investment portfolio, of which $3 billion are investment grade, readily marketable, and not pledged on any borrowing base. Additionally, we have $1.5 billion unused borrowing capacity with Fed, Federal Home Loan Bank, and Forth Funded Banks. Non-interest income of $21.2 million was down $600,000 from prior quarter, principally due to decrease in deposit account and other fees partially offset by an increase in loan fees. Compared to first quarter 2019, non-interest income was down $489,000, primarily due to lower deposit account fees and net securities gains offset by higher loan fees. Non-interest expense was $84.3 million in the first quarter, which was a decrease of $2.7 million on a linked quarter basis. on a year-over-year basis, non-interest expense was actually down $429,000. We anticipate our expense run rate to continue in the mid-'80s as we handle expenses associated with COVID and continue to invest in our future. Our core non-interest expense ratio was 2.41% for the quarter, down from 2.53% in the fourth quarter. Our expense ratio compares favorably to the 2.60% reported in the first quarter of 2019. Our effective tax rate for the quarter was 18.1%, which compares to 20.5% on a linked quarter basis and 19% for first quarter 2019. At this point, I'd like to turn the call over to Chris.