Columbia Banking System, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Columbia Banking System's second quarter 2022 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're on a telephone, this should require... As a reminder, this conference is being recorded. I would like to turn the call over to your host, Clint Stein. President and Chief Executive Officer of Columbia Banking Systems. Please go ahead.

Thank you, Victor. Welcome and good morning, everyone, and thank you for joining us on today's call as we review our second quarter results. The earnings release and accompanying investor presentation are available at columbiabank.com. Our associates continue to remain focused on delivering favorable outcomes for each of our stakeholders, and their efforts are reflected in our outstanding results for the second quarter. Net income of $58.8 million was the best quarter in our 29-year history. Our solid operating fundamentals were propelled by exceptional loan growth and underpinned by the strength of our stable core deposit base. We continue to see our investments in people and systems pay off in terms of production capabilities. Our bankers are working hard every day to deepen and expand relationships with our clients by providing products, solutions, and industry-specific expertise. These activities support our clients' goals, which in turn supports the economic health of communities across our entire footprint. Preparation for our combination with Umpah Holdings is progressing, as teams from both companies eagerly await regulatory approval. On the call with me today are Aaron Gere, our Chief Financial Officer, Chris Meriwell, our Chief Operating Officer, and Andy McDonald, our Chief Credit Officer. Following our prepared remarks, we'll open the line for questions. Before turning 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, Glenn, and good morning, everyone. Pre-tax, pre-provision income rose by $11.2 million on a linked quarter basis to $78.7 million. The increase was driven by a combination of rising interest income, higher non-interest income, and lower operating expenses, most notably with declines in merger-related costs and compensation and benefit costs, including the impact of some one-time items I'll discuss in a moment. Total deposits ended the quarter at $18 billion, which was a decrease of $342 million for the quarter, but up $2.6 billion from a year earlier, with $1.7 billion coming from our merchants acquisition. The linked quarter decrease was largely consistent with pre-pandemic seasonal trends. Our cost of deposits edged up one basis point to five basis points. Total loans rose by $563 million during the quarter to $11.3 billion. After factoring in PPP balances, loans increased by $613 million, or 23% annualized. Growth was propelled by $734 million in new loan originations and a two and a half point increase in our loan utilization rate. Two years after the launch of the Paycheck Protection Program, most of the $1.5 billion in loans we funded in communities throughout our footprint are now forgiven and paid off by the SBA. As of June 30th, only $32 million in PPP balances remain. Total investment securities decreased $458 million during the quarter to $7.3 billion, which was split 70% available for sale and 30% held to maturity. The quarterly decrease was driven by both the fair value marker in our AFS portfolio, as well as maturities, premium amortization, and paid ends. No new purchases were made during the quarter. The expected yield in the current portfolio is 1.89%, up three basis points during the quarter. Our net interest margin increased four basis points on a linked quarter basis, to 3.16%, largely due to the shift in earning assets from Fed funds into higher yielding loans. Excluding the four basis point differential of premium amortization on acquired loans and securities and the two basis point differential in accelerated PPP fees between the two quarters, the margin increased 10 basis points sequentially. New loans were brought on at an average tax-adjusted coupon rate of 3.93%, which is up from 3.59% in the first quarter. and the coupon rate on the overall portfolio, excluding PPP, increased from 3.84% to 4.07%. More recent production is coming out at even higher rates, and with more loans lifting off floor rates, we should see those benefits more fully reflected in our third quarter results. Non-interest income increased linked quarter by $826,000 to $25 million. Service charges and deposits excuse me, service charges on deposit accounts increased by $1.1 million, largely due to a $685,000 increase in sweep account fees, which are reported on a gross basis, a similar offsetting amount reported to legal and professional expense. Loan revenue increased by $688,000, mostly driven by an increase in our loan production and prepayment penalties, but partly offset by the cyclical decline in mortgage banking revenue. Other non-interest income declined by $821,000, largely because of one-time gains we recorded in the first quarter. For the second quarter, we still had $1 million in non-recurring income, including a BOLI benefit and a payment for our participation in an Oregon disaster relief program. Non-interest expense decreased by $9.7 million linked quarter to $95.4 million. Adjusting for merger-related expenses of $3.9 million in the second quarter and $7.1 million in the first quarter, non-interest expense decreased by $6.5 million to $91.5 million. The linked quarter decrease was due to several factors, largely affecting the compensation and benefits line. For one, the first quarter included roughly $2.1 million of seasonally elevated payroll taxes and benefit costs. Meanwhile, the second quarter benefited by about $1.4 million from benefit accrual and funding adjustments. And finally, the second quarter also benefited from FAS 91 capitalized loan origination costs, owing to the very strong loan production in the period. And that reduced compensation expense by about $1 million compared to the first quarter, and about a half million compared to the average of recent periods. Finally, occupancy and data processing costs also declined, some of which stem from the completion of our merchant's bank core conversion back in March. We anticipate our normalized expense run rate, excluding merger costs, to be in the mid-90s. The provision for income taxes increased $565,000 on a linked quarter basis to $16.2 million, representing a 21.6% effective rate. We continue to expect our 2022 tax rate to be in the 20% to 22% range, but perhaps toward the higher end of that range given our higher profitability. Lastly, as I discussed last quarter, the rise in interest rates result in a negative fair value mark on our investment portfolio reflected through accumulated other comprehensive income. While this mark does not affect our regulatory capital ratios, it does weigh in our tangible common equity ratio and tangible book value. Excluding AFCI, however, both our TCE ratio and our tangible book value increased during the quarter. And with that, I'll turn the call over to Chris.