Columbia Banking System, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Columbia Banking System's third quarter 2020 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, Clint Stein, President and Chief Executive Officer of Columbia Banking System.

Thank you, Tamara. Welcome and good morning, everyone. Thank you for joining us on today's call as we review our third quarter results, which we released before the market opened this morning. The earnings release and investor presentation are available at ColumbiaBanks.com. We saw momentum continue to rebuild in the third quarter as evidenced by the growth in deposits, core earnings, and our loan pipeline. From the onset of the pandemic, our bankers have remained externally focused with the mindset that the current environment could be with us well into 2021. The team continues to be creative, implementing new, real-time solutions for our clients and our employees, such as our highly successful Pass It On campaign, quickly standing up the PPP loan and forgiveness portals, or providing resources for parents who are juggling work and distance learning for their children. Out-of-the-box thinking is valuable in a time like this, and our team's ingenuity is paying dividends. In the midst of it all, we opened our newest neighborhood hub in Boise expanding our commitment to southern Idaho. On the call with me today are Aaron Deer, our Chief Financial Officer, Chris Merrywell, our Chief Operating Officer, and Andy McDonald, our Chief Credit Officer. Following our prepared remarks, we will 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 our SEC filings. At this point, I'd like to turn the call over to Aaron to review our financial performance.

Thank you, Clint. First quarter earnings of $44.7 million and EPS of 63 cents were an increase of $8.2 million and 11 cents respectively on a linked quarter basis. Quarterly pre-tax, pre-provision earnings of $62.1 million were down $16.2 million due to the non-recurring second quarter gain on sale of a portion of our Visa Class B restricted stock and subsequent write-up of the remaining shares that contributed $16.4 million to that quarter. Total deposits ended the quarter at $13.6 billion, up $469 million from June 30th. This supported a further reduction in FHLB borrowing and an increase in earning assets, which together drove net interest income up by $2.9 million when compared to the second quarter. Access to liquidity from the deposit inflows was mostly invested in lower yielding mortgage-backed securities, which combined with lower loan yields and other factors resulted in a 17 basis point drop in the net interest margin to 347. Of note, PPP loans weighed on the margin by about nine basis points. Given the great environment and outlook, we anticipate great pressure to continue. Though we have taken measures to mitigate this pressure, including targeted adjustments to our deposit pricing, Purchases of agency securities with reduced repayment risk and adding floors to new loan production. Our industry-leading cost of deposits dropped by one basis point to six basis points. I will also note that just last week we terminated our $500 million notional value interest rate collar, effectively locking in the gain on that collar to benefit the margin through February 2024. Total loans ended the quarter at $9.7 billion, down $82 million from June 30th. Loan production was light for a third quarter at $279 million. However, production volumes increased sequentially throughout the quarter. Excluding PPP, new loan production was brought on at an average tax-adjusted coupon rate of 3.86%, which compares to the overall portfolio of 4.14%. Non-interest income of $22.5 million was a decrease of $14.8 million. After factoring out the one-time gains of $16.4 million on the Visa Class B restricted stock and $875,000 from the disposal of loans in the second quarter, non-interest income was actually up $2.5 million or 13%. Increased transaction volume from the relaxation of shelter-in-place orders drove card revenues and deposit service fees up by $755,000 and $566,000 respectively, and loan revenue increased by $1 million, mostly from new mortgage loans originated and sold. Non-interest expense was $85.1 million in the third quarter, which was an increase of $4.3 million on a linked quarter basis. Compensation and benefits expense increased by $9.1 million principally due to the deferral of loan origination costs related to the PPP loan program in the second quarter. This was offset by a $2 million reduction in the provision for unfunded loan commitment included in other non-interest expense. Much of the remaining $2.8 million non-interest expense variance was due to systems Legal and Professional, and other various costs incurred in the second quarter to set up the PPP program and respond to the pandemic. Our non-interest expense ratio remained at 2.13% for the quarter, and our operating rate efficiency ratio increased about a point to 56%. We expect our quarterly non-interest expense run rate to remain in the mid-80s for the fourth quarter. Our effective tax rate for the quarter was 18.2%, and should remain in the 18 to 19% range for the full year. With that, I'll turn the call over to Chris.