Columbia Banking System, Inc.

Welcome to the Columbia Banking System's first quarter 2024 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 will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. At this time, I would like to introduce Clint Stein, President and CEO of Columbia, to begin the conference call.

Thank you, DeeDee. Good afternoon, everyone. Thank you for joining us as we review our first quarter results. The earnings release and corresponding presentation are available on our website at ColumbiaBankingSystem.com. During today's call, we will make forward-looking statements which are subject to risk and uncertainties and are intended to be covered by the safe harbor provisions of federal securities law. For a list of factors that may cause actual results to differ materially from expectations, please refer to the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures and encourage you to review the non-GAAP reconciliations provided in our earnings materials. With that, March 1st marked the one year anniversary of the closing of our merger. It was a notable milestone for our company for many reasons. Importantly, it provided us with a full year of data points for what was working well within the combined organization and allowed us to identify redundancies and inefficiencies that are a natural byproduct of large mergers. Our one year anniversary marked the conclusion of our merger integration phase and enabled us to start our operational effectiveness work. Armed with the observations and learnings over the first year, we made significant progress on identifying opportunities for improving our expense profile. During the first quarter, we reduced our headcount by 91 FTE, with additional reductions communicated internally of 142 for the month of April. The FTE reductions combined with other expense savings enacted in the first quarter represent annualized reductions of $18 million. These savings are reflected as of quarter end, not in the first quarter's normalized operating run rate of $286 million. The actions taken to date for the second quarter add an additional $25 million of savings annualized to the first quarter number. You have heard me say many times over the years that we target a top quartile level of performance across all financial metrics, and a lower cost structure moves us toward our goal and away from what has been up to this point average at best. The meaningful reductions to our associate base were done in a thoughtful manner. Eliminated positions and retirements spanned all departments and levels of management, including the executive team, which is now 15% smaller. Over the past year, our leaders gained an in-depth knowledge of their teams, processes, and other factors, allowing them to identify areas for operational improvement. This full-scale review resulted in consolidated positions, simplified reporting and organizational structures, and an improved profitability outlook. We believe these changes will enable us to operate more efficiently while preserving the premier levels of service we provide to our customers. Associated cost savings will continue to be realized during the second and third quarters with the full benefit of our actions reflected in the fourth quarter expense run rate we outlined in our March update. We expect to incur roughly $13 million in related restructuring expense in the second quarter, which will be fully mitigated by the associated expense reductions within the current year. Our organizational review resulted in a swift elimination of redundancies, but our work is not complete. Our process identified many longer-term initiatives to enhance operational efficiency and further drive franchise value. Many of you know Columbia has always operated in a cost-conscious manner, and we will continue to seek out additional opportunities to optimize our performance from a revenue, expense, and profitability standpoint. I hope our actions year-to-date demonstrate that we are laser-focused on regaining our placement as a top quartile bank as we drive towards long-term, consistent, and repeatable performance. Upon completion of this initiative, our ability to reinvest in our people, our franchise, and our suite of products and services will remain intact. We believe these investments, along with a lower expense base, will continue to drive additional long-term shareholder value. And now I'll turn the call over to Ron.

Okay. Thank you, Quint. We reported first quarter EPS of 59 cents and operating EPS of 65 cents per share. And our operating return on average tangible equity was 16%. while the operating PPNR was $201 million. Please refer to non-GAAP reconciliations provided at the end of our earnings release and presentation for details related to our calculation of operating metrics. On the balance sheet, we had $200 million of loan growth and $100 million of deposit growth. For deposits, we had a decline in non-sparing demand that occurred in January, but we're encouraged to see those balances flat for both February and March. Our net interest margin of 3.52% was within our estimated range of 3.45 to 3.60%, and the expected reduction from the prior quarter was driven primarily by the deposit shifts that occurred in Q4 and January. Our NIM increased to 3.55% in the month of March due to pricing reductions on wholesale and promotional funding. Our cost of inspiring deposits was 2.88% for the quarter. Within the quarter, this cost was 2.90% for both February and March, but ticked down to 2.89% at the very end of March. Our projected interest rate sensitivity under both ramp and shock scenarios remains in a liability-sensitive position, and we expect our rates down deposit betas to approximate those experienced on the way out. Now, provision for credit loss was $17 million for the quarter. We updated our commercial CECL models this quarter to better reflect historical and expected future losses. In 2023, the methodology for our combined company was structured to the historical UMPWA portfolio composition. The outcome was increased volatility in our provision expense that wasn't characteristic of the granularity and quality of our combined commercial portfolio. Our recalibrated commercial models, which now integrate additional data and operating knowledge, have effectively reduced our commercial allowance for credit losses. It's important to note that the increase in our CRE and multifamily ACL is a response to the transient market conditions in western downtown cores, where we maintain a minimal presence in our portfolio. Despite these adjustments, our overall allowance for credit loss remains robust, closing the quarter at 1.16% of total loans or 1.36% when including the remaining credit discount. Total gap expenses for the quarter were $288 million, while operating expenses were $277 million. We've reflected the FDIC special assessment as non-operating item in the press release. Of note, we had a number of one-off items in the quarter that benefited our expense level. Absentees, IPIG, or normalized level of operating expense $286 million. As a reminder, on the expense front, we expect to record a restructuring charge of approximately $13 million related to the efficiency initiatives that Clint discussed as non-operating expense in Q2. Now, let's check to our cap or regulatory capital position. Our risk-based capital ratios increased as expected in Q1. We expect to build capital above all long-term targets, which will provide for enhanced future flexibility. I'll close with our outlook for 2024 on several key financial statement items. These are consistent with those included in our early March investor presentation. Average earning assets are expected to remain in the $48 to $49 billion range. Our NIM is expected to remain in the 3.45% to 3.60% range, which includes stability and deposit balance. For discount accretion, we continue to expect $130 to $140 million of securities rate-related accretion, $90 million to $100 million of loan rate-related accretion, and $15 to $20 million of loan credit-related accretion. We expect full year operating expense, including CDI amortization, in the $975 million to $1.025 billion range. With the cost savings that Clint discussed earlier, we expect our Q4 operating expense, excluding CDI amortization, to be in the $965 to $985 million range on an annualized basis. We expect CDI amortization of $120 million for the year, with about $29 million in each of the remaining quarters of 2024. Merger related expense of $10 to $15 million, and our effective income tax rate at 26.5%. With that, I will now turn the call over to Frank.