Columbia Banking System, Inc.

Good day and thank you for standing by. Welcome to the Columbia Banking System first quarter 2025 earnings and Pacific Premier Bank Corp acquisition announcement conference call. At this time, all participants are on the 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'd like to introduce Clint Stein, President and CEO of Columbia, to begin the conference call. Please go ahead.

Thank you, Dilem. Good afternoon, everyone. Thank you for joining us as we review Columbia's first quarter results in the announced acquisition of Pacific Premier Bancorp. The news releases and corresponding presentations 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 I encourage you to review the non-GAAP reconciliations provided in our earnings materials. I want to thank each of you again for joining us on short notice. I'm eager to get to our discussion of Pacific Premier, an acquisition which I'm excited to talk about, but we also have another solid quarter of results to share with you. Our consistent, repeatable performance in 2024 carried through to the first quarter of 25. Our results reflect our disciplined focus on relationship banking as our teams work toward long-term, balanced growth in deposits, loans, and core fee income. Our net interest margin contracted modestly, as anticipated in the first quarter, given customer cash usage in December that carried through into January. But the positive effects of our retail and small business deposit campaigns, as well as growing commercial balances, offset these impacts, defying seasonal norms with $440 million in net customer deposit growth for the quarter. Loan origination volume was up 17% from the first quarter of 2024, as momentum from the fourth quarter carried through into the new year. Our banking teams continue to win new business with new and existing customers. However, total loan balances were relatively flat as of quarter end due to higher prepayment and payoff activities. Period-end totals were also muted by our continued focus on pushing the transactional real estate loans discussed in previous quarters off our balance sheet. Beyond the non-recurring items that impacted our expenses in the first quarter, Columbia maintained its disciplined cost culture while continuing to reinvest in our growing franchise. We opened our first retail branch in Colorado in March in support of the banking teams that have already been offering our full suite of products and services in the market since 2022. We'll continue to fine-tune our branch footprint and expand in geographies where we see opportunities. On that point, today we announced our partnership with Pacific Premier. With this acquisition, Columbia will become a $70 billion in assets franchise and pick up a complimentary set of products and services to support our growing customer base. Our eight-state Western footprint remains intact but as Pacific Premier's footprint is heavily weighted in Southern California, we accelerate our strategic goals in this market by a decade or more. I'm not going to take you through a page turn presentation of the deal deck, but I will reference certain key slides during my remarks. Slide four in the deck highlights the highly complementary footprints of Columbia and Pacific Premier. I've previously discussed Columbia's expansion plans in Arizona, Colorado, Utah, and Southern California. A de novo branching strategy accomplishes our coverage goals in the first three states, but Southern California is different. There are 13 million people in the Los Angeles market alone, which is more than Washington and Oregon combined, and there are over 20 million people in the broader Southern California market. Pacific Premier's Southern California footprint fills in our western reach from Canada to Mexico, and it enhances our presence in other growth markets like Las Vegas and Phoenix. This acquisition provides the physical footprint to support our Southern California banking teams who have done a phenomenal job with limited infrastructure. It also provides expanded capabilities to the PPBI team through broader product offerings and the benefits of a much larger balance sheet. Columbia's deposit market share position in Southern California moves from 51st to number 10 on a pro forma basis, as outlined on slide 8. Ron will cover the numbers behind this financially attractive acquisition in greater detail, but as part of the all-stock transaction, Pacific Premier shareholders will receive a fixed exchange ratio of 0.915 of share of Columbia stock for each Pacific Premier share. Following the deal's closing, Pacific Premier shareholders will own 30% of the combined company, and Columbia shareholders will own 70%. Notably, we expect the transaction to have minimal impact on Columbia's capital ratios, and we do not need to raise additional capital to support the deal. Columbia's executive leadership team remains intact, and three Pacific Premier directors will join Columbia's board, including Steve Gardner, Pacific Premier's chairman and CEO. Combined Organization will operate under the unified brand of Columbia Bank, as Umpqua Bank will change its name to Columbia Bank later this year. The Columbia Bank name aligns with our holding company name and other brands the bank operates today, simplifying our family of brands and ensuring brand clarity as we deepen our presence throughout the West. Beyond double-digit EPS accretion and a short earn-back period, This transaction represents a strategically compelling partnership, as slide five outlines. Columbia and Pacific Premier are like-minded business banks that share a relationship-based operating philosophy. The banks have nearly identical low-cost deposit compositions, including a top quartile percentage of non-interest-bearing deposits. Pacific Premier's products and service offerings are additive to Columbia's, as we strive toward a larger contribution of fee income to our revenue stream. Pacific Premier's custodial trust business complements our existing wealth management platform, adding new capabilities and revenue-enhancing opportunities. We'll also add Pacific Premier's attractive HOA banking, escrow, and 1031 exchange businesses, driving additional fee income and adding low-cost core deposits, as detailed on slide 10. Execution risk for this transaction is low. It is predominantly an expansion in existing markets with limited overlap, and we expect very little disruption to depositors, borrowers, and our banking teams. Companies have similar credit cultures founded on conservative underwriting, robust review processes, and relationship centric banking. Our thorough due diligence process confirms significant alignment in our credit approach. go-to-market strategy, operating philosophies, and cultures. In addition, both companies have significant acquisition experience and integration talent, so we expect a smooth combination in every respect. I want to take a moment to address heightened macro uncertainty and the recent market volatility. Columbia's consistent approach to banking is a key contributor to our success through business and credit cycles. Our conservative and disciplined approach to building a diversified and granular balance sheet anchored by enduring customer relationships has historically allowed us to thrive during volatile periods. Our company has grown stronger as we have gained scale, talent, and process improvement through the mergers and acquisitions that have shaped Columbia over the years. Through it all, we have maintained our culture, supported our growing customer base, maintaining our strong credit profile, and building a superior core deposit franchise. I want to thank our associates for their hard work in delivering another solid quarter of operational results. Their accomplishments contribute to my enthusiasm for our future. Our pending acquisition of Pacific Premier accelerates the organic opportunities in front of us as we continue to grow our customer base throughout our eight state western footprint. Together, we continue to strive toward consistent, repeatable, top quartile performance in support of long-term shareholder value. I'll now turn the call over to Ron.

Okay. Thank you, Clint. I'll begin with a review of the first quarter's results. We reported first quarter EPS of 41 cents per share and operating EPS of 67 cents, which excludes a previously disclosed legal settlement of $55 million, $15 million in severance expense, and other fair value and hedging items detailed in our non-GAAP disclosures, which I encourage you to review. Our operating return on tangible equity was 15%, while operating PPNR was $212 million. As Clint noted, our bankers' activity helped offset typical seasonal deposit contraction, as customer cash usage in December carried through into January. Balance generation from our small business and retail campaign and other growth in commercial deposits drove $440 million in customer deposit growth during the first quarter. Growth in relationship-based accounts enabled us to repay $590 million of wholesale funding, inclusive of broker deposits, and the favorable mix shift benefited our net interest margin later in the quarter. As we discussed on last quarter's call, seasonal deposit flows led to four basis points of NIM contraction, to 3.60% in the first quarter. Wholesale repayments were largely executed in March. Our provision for credit loss was $27 million to the quarter, and our overall allowance for credit losses remains robust at 1.17% of total loans, or 1.32% when including the remaining credit discount. Non-interest income was $66 million to the quarter, with the change from Q4 mostly related to fair value swings given interest rate changes. On page 16 of our earnings release, we detail the non-operating fair value changes. Excluding those items, our operating non-interest income of $56.9 million for Q1 was up $2 million, as last quarter's loss on sale of loans did not repeat. Total gap expense for the quarter was $340 million, while operating expenses were $270 million, with the variance detailed on page 16 of the earnings release. Seasonally higher payroll taxes and elevated legal expense, separate from the legal settlement, drove the $7 million increase from the prior quarter. Before taking today's merger announcement into consideration, we continue to expect our operating expense, excluding CDI amortization, to be in the $1 to $1.01 billion range for 2025. And lastly, our tax rate was impacted by non-deductible expenses during the quarter, We expect it to remain in the mid-25% range on an operating basis for the remainder of 2025. Turning now to the proposed transaction with Pacific Premier, slides 21 and 22 in the deal deck detail a diversified pro forma loan portfolio and the similar deposit profiles Clint discussed. Slide 18 lays out key deal-related financial assumptions. We begin with consensus estimates for Columbia and Pacific Premier, and we expect to realize approximately $127 million in pre-tax cost savings, which represents 30% of Pacific Premier's non-interest expense base. We expect 75% of savings to be phased in during 2026 and 100% thereafter. As Clint outlined, we expect to realize revenue synergies given opportunities across our combined customer base though none are included in our announced financial projections. We expect one-time after-tax deal-related costs of $146 million. Fair value and interest rate marks, which will be accreted over the remaining life of the assets, include rate-related write-downs of $449 million on Pacifica Premier's gross loan portfolio, $327 million on health and maturity securities, and $91 million related to available for sale securities. We also anticipate a $25 million reversal of existing marks on Pacific Premier's acquired loans, a $12 million write-up to fixed assets, and an $11 million write-up of time deposits, which will be amortized over approximately one year. The $96 million credit mark, which is equivalent to 0.8% of Pacific Premier's gross loan portfolio, is allocated 50% to purchase credit to charity or PCD loans and 50% to non-PCD loans. As with interest rate marks, the non-PCD mark will accrete into interest income over the remaining life of the loans. We expect to realize an initial provision expense of $48 million on non-PCD loans immediately following the transaction's closing. The core deposit intangible is estimated at 3.3%. of Pacific Premier's core deposits, and it will be amortized over 10 years using a sum of the year's digits calculation. Lastly, Pacific Premier intends to call its outstanding subordinated debt prior to the transaction closing. These assumptions drive our expectations for 14% EPS accretion in 2026 and 15% in 2027 based on consensus estimates. We project 7.6% of tangible book value dilution and a three-year earn-back period. Please refer to the appendix for reconciliation of the metrics I just discussed. The slides 14 and 15 outline the significant value creation and applied equity value upside this transaction offers. Given Pacific Premier's excess capital position, we expect limited impact to our capital ratios at closing, and as Clint noted, we will not need to raise additional capital. I will now turn the call back over to Clint.