Columbia Banking System, Inc.

Welcome to Columbia Banking Systems' third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. If you are on the telephone and should require assistance during the conference, please press star and then 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 Systems.

Thank you, Norma. Welcome and good morning, everyone. And thank you for joining us on today's call as we review our third quarter results, which we've released before the market opened this morning. The earnings release and accompanying investor presentation are available at columbiabank.com. Before we begin, I want to welcome the nearly 200 new Columbia Bank employees who joined us from Bank of Commerce Holdings on October 1st. I've spent a lot of time over the past few months getting to know the California team, and I'm excited about their contribution to the future growth of our company. Today we reported third quarter net incomes of $53 million, or 74 cents per share. The third quarter was very busy as our bankers deepened relationships in our existing markets, resulting in substantial growth in both our core loan and deposit portfolios. Fee income rose across the board and expenses were well controlled. Our operational teams worked tirelessly to ensure an efficient and successful close of the Bank of Commerce holdings acquisition, finalizing our entry into the California market. And shortly after the third quarter ended, we announced our planned combination with Unqua Holdings. We expect the momentum to continue in the fourth quarter and into next year as our bankers remain laser focused on expanding existing relationships and winning new business. On the call with me today are Aaron Deer, our Chief Financial Officer, Chris Meriwell, our Chief Operating Officer, and Andy MacDonald, our Chief Credit Officer. Following our prepared remarks, we'll open the line for questions. I do need to remind you that we may make forward-looking statements during today's call. For further information on forward-looking comments, please refer to either our earnings release, our website, or our SEC filings. At this time, I'll turn the call over to Aaron. Thank you, Clint. Good morning, everyone. During the third quarter, Columbia generated net income of $53 million, or $0.74 per share, driven by solid fundamentals. Adjusted for $2.2 million of acquisition-related costs, pre-tax, pre-provision income of $70.8 million was our second-best quarter on record, trailing only the second quarter of 2020 when we recorded a large gain on our Visa B shares. Deposit inflows remained exceptional, with balances up $608 million during the quarter to $16 billion at September 30th, representing an annualized growth rate of 16%. Over the past 12 months, deposits grew by 2.4 billion, or 17%. Our cost of deposits in the third quarter remained at a historic low of just four basis points. Total loans, net of PPP, increased by 183 million, or 8% annualized, to 9.2 billion at September 30th. Remaining PPP loans totaled 337 million at period end, and the remaining net deferred fee still to be realized was $8 million as of September 30th. We originated $366 million of new loans during the quarter. This new production was brought on at an average tax-adjusted coupon rate of 3.59%, which compares to the overall portfolio rate, excluding PPP, of 3.83%. Our investment securities portfolio was $6.9 billion as of September 30th, which was a linked quarter increase of $692 million, driven by $971 million of purchases. Purchases had an average weighted yield of 1.48% and a duration of 5.5 years. The portfolio's expected yield is 1.78%, with a duration of 4.9 years. The net interest margin rose one basis point linked quarter to 3.17%, and net interest income rose by 7.1 million. Overall, loan income rose on a linked quarter basis, benefiting from the accelerated amortization of PPP loan fees, partly offset by lower interest income from declining PPP balances. Excluding the impact of PPP, the net interest margin declined 15 basis points to 3%, reflecting continued asset yield pressures and increased balance sheet liquidity. But as interest rates in the operating environment improves, we expect our margin to rebound as existing and variable as existing variable and floating rate loans reprice higher, and cash flows from the securities portfolio are redeployed into higher-yielding loans. Non-interest income rose $1.2 million on a linked quarter basis to $24 million. Part of the increase was from a $750,000 gain on the sale of HSA accounts, with the remainder of the increase largely due to higher loan revenue, though all business lines posted solid results. Non-interest expense of $90 million included merger-related costs of $2.2 million for the Merchant's Bank of Commerce transaction. Excluding acquisition costs, non-interest expense of $87.8 million increased $4.2 million on a linked quarter basis. Much of this increase stemmed from a smaller FAS91 benefit on the compensation line as the previous quarter had elevated loan originations due to PPP activity. Meanwhile, the September quarter also had some outsized facilities, maintenance, and technology costs. Lastly, the provision for income taxes decreased $1.1 million on a linked quarter basis to $13.5 million, representing a 20.3% effective rate. We continue to expect our 2021 tax rate to be in the range of 19% to 21%, though the higher end of that range is looking more likely. And with that, I'll turn the call over to Chris.

Thank you, Aaron, and good morning, everyone. Our bankers have been busy generating strong loan production of $366 million in the third quarter. with nearly $1 billion produced in the past six months outside of PPP. At the same time, we have actively replenished our pipelines, which remain to our satisfaction. Deposits have continued to rise at an annual rate that is stabilized in the 16% to 17% range, and fee income is up across the board. We are winning new business by taking advantage of the disruption in the marketplace because of who we are. Simply said, we have followed a different process. We believe that people want community and personal contact in their banking relationships, and we have delivered on that on a multifaceted level. Quarterly loan production was predominantly C&I and CRE focused. New business was centered in real estate leasing, construction, and healthcare sectors across our markets. Line utilization, which has been low throughout the pandemic, rose slightly to 44.9%, with commitments rising by $141 million to $5.1 billion and exceeding $5 billion for the first time in our history. The quarterly production mix was 58% fixed, 40% floating, and 2% variable. The overall portfolio is now 4% PPP, 52% non-PPP fixed, 33% floating, and 11% variable. The composition of the loan portfolio remained relatively unchanged. As Aaron mentioned, deposits grew by $608 million during the quarter and by $2.4 billion over the past 12 months. The quarterly inflows have trended towards demand accounts over the last year, and as a result, the split has changed from 51% non-interest-bearing and 49% interest-bearing to an even split of 50-50 between the two as of September 30th. Fee income continues to be a bright spot. Card fees are up during the quarter from increased transactional volumes. Loan fees are up in alignment with loan production, and CB Financial and Columbia Trust Company continued their breakout year with yet another record quarter. Residential mortgage activity remained strong in the third quarter, with approximately 65% related to refinancing and 35% related to purchases. As part of our ongoing branch rationalization process, we consolidated three branches in September and October. We have announced another to occur in January of 22. And in light of our announcement of the UNCWA partnership, we are now evaluating our retail delivery strategy across the combined footprint. Now I will turn the call over to Andy to review our performance.