Columbia Banking System, Inc.

Good day, and thank you for standing by. Welcome to the Columbia Banking Systems first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. I would now like to hand the conference over to your speaker today, Clint Stein, President and Chief Executive Officer of Columbia Banking Systems. Please go ahead.

Thank you, Catherine. Thank you. Welcome and good morning, everyone, and thank you for joining us on today's call as we review our first quarter results. The release and accompanying investor presentation are available at ColumbiaBank.com. Our first quarter financial performance was outstanding. Net income of $57.5 million and EPS of 74 cents per share were the best first quarter on record. Our bankers delivered with solid loan and deposit growth, credit remained stellar, and expenses were well managed. During the quarter, we also completed the integration of the Bank of Commerce holdings acquisition, and integration activities related to our combination with Umpqua Holdings are also proceeding very well. The Integration Management Office, led by executives from both banks, has done an excellent job seeking out and addressing any challenges that can arise in a sizable combination. As a result, teams from both companies have coalesced to ensure a smooth and timely close once the necessary regulatory approvals are received. 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 will open the line and take your questions. Before I turn the call over to Aaron, I need to 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. Aaron? Thank you, Clint, and good morning, everyone. First quarter pre-tax, pre-provision income of $67.4 million, net income of $57.5 million, and earnings per share of $0.74 were all new first quarter highs in spite of $7.1 million of merger-related costs, which decreased earnings by $0.07 per share. Average earning assets increased by $3.8 billion from the first quarter of 2021, including $1.8 billion from the merchant's bank acquisition. This, combined with the partial quarter impact of the Fed's March rate increase, resulted in an increase in net interest income of $22 million, or 18% over the prior year period. Linked quarter pre-tax, pre-provision income increased by $704,000, Adjusting for merger related costs, PPR decreased by 4.1 million, partly due to the seasonal reset of payroll taxes and benefit costs, as well as increased expense related to the higher starting wage we implemented at year end, and more recent annual merit adjustments. In addition, loan related expenses normalized from a low level in the prior quarter. Total deposits ended the quarter at 18.3 billion, which was an increase of 289 million from year end. First quarter inflows were predominantly in our money market sweep product, and our cost of deposits remained at our all-time low of just four basis points. Total loans ended the quarter at $10.8 billion. Excluding PPP balances, loans increased by $219 million, or 8.4% annualized. Growth was propelled by $464 million in new loan origination and a modest increase in line utilization. PPP forgiveness and paydowns dampened overall loan growth by 101 million, reducing total loan growth to 118 million, but still a solid 4.4% annualized. The net interest margin of 3.12% was up seven basis points on the linked quarter basis, mostly due to higher yields than investment securities, and that was largely due to lower premium amortization on the portfolio. PPP loans had a positive three basis point impact in the first quarter, which was down from six basis points in the fourth quarter. New loans were brought on at an average tax-adjusted coupon rate of 361, which compares to the overall portfolio, excluding PPP, of 384. Notably, our balance sheet remains very well positioned for the rate increases expected to continue through the year. Still, we may not see all of that benefit materialize in new loans, given the intense price competition across our footprint, as industry liquidity remains very high. Non-interest income was relatively flat on a linked quarter basis at $24.2 million. Favorable non-recurring items during the quarter included gains of $868,000 and $311,000 respectively on the sale of loans and the health savings account portfolio acquired from Merchants Bank. In addition, we had a $395,000 gain on the sale of a vacant branch property. These one-time items offset declines in mortgage banking, and loan-related income attributed to the higher interest rate environment. Non-interest expense of $105.1 million increased by $2.4 million linked quarter. After adjusting for merger-related expenses of $7.1 million in the first quarter and $11.8 million in the fourth quarter, non-interest expenses increased by $7.2 million to $98 million. The linked quarter increase was mostly due to the aforementioned rise in compensation costs and loan expenses as well as a $2.5 million increase in the provision for off-balance sheet liabilities. As seasonally elevated compensation costs drop off and merchant's bank cost saves are fully realized, we expect our expense run rates to be closer to the mid-90s. The provision for income taxes increased $2.5 million on a linked quarter basis to $15.6 million, representing a 21.3% effective rate, and we expect our $22.5 2022 tax rate to remain in the 20% to 22% range ahead of our combination with UMPLA. And with that, I'll turn the call over to Chris. Thank you, Aaron.

It's been a busy quarter, and we are seeing positive results from investments in our production and our support teams. As Aaron mentioned, non-PPP loan production of $464 million was the largest first and our fourth highest quarter on record. This is on the heels of our best quarter in company history, ex-PPP, of $640 million in the fourth quarter of 2021. Our bankers continue to be successful in winning new business in the face of an intensely competitive lending environment. As the economy has reopened and expanded, our bankers deepened existing and built new relationships in all of our markets. Both producers and clients across our footprint Appreciate the value of the upcoming combination with Umpqua and the increased capabilities that it will bring. Our pipelines remain full and to our satisfaction. Line utilization rose modestly during the quarter. Increases in construction line utilization were offset by the normal seasonal decrease in agriculture. Across the footprint, a coral wet spring has delayed plantings for many crops resulting in weaker than normal advances. We anticipate this to reverse in the second quarter as the warmer, drier weather returns. The quarterly production mix was 65% fixed, 25% floating, and 10% variable. The overall portfolio now stands at 1% PPP loans, 54% non-PPP fixed, 30% floating, and 15% variable. As a result of higher rates, we saw a drop in our mortgage warehouse business during the quarter, with sold loans dropping from $75 million to $57 million. Overall, the composition of the loan portfolio did not change materially. The pockets grew at an annualized rate of 6% during the quarter and 24% over the past 12 months. The sourcing of deposits was stable at 59% business and 41% commercial. Similarly, the mix of deposits was fairly steady at 48% non-interest-bearing and 52% interest-bearing. During the quarter, we moved our Bellevue Way branch to a new financial hub location And in July, we will be opening our Proctor District Financial Hub in Tacoma and have begun construction on a new financial hub in Astoria, Oregon. These full-service locations are uniquely focused on helping our clients achieve their comprehensive financial goals, including investments, trust services, and other financial considerations. Now, I will turn the call over to Andy to review our credit performance.