On Thursday, Columbia Banking System (NASDAQ:COLB) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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The full earnings call is available at https://edge.media-server.com/mmc/p/y2c5ea4c/
Summary
Columbia Banking System reported first-quarter earnings per share of $0.66 and operating earnings per share of $0.72, with substantial increases in pre-provision net revenue and operating net income due to the Pacific Premier acquisition and balance sheet optimization.
The company successfully completed the PAC Premier Systems conversion and consolidated nine branches, achieving significant cost savings and positioning itself for continued financial stability and growth.
Management highlighted strong commercial loan origination and deposit growth, with plans to continue share repurchases, supported by a robust capital position and a focus on optimizing performance and enhancing shareholder returns.
Full Transcript
OPERATOR
Hello and welcome to Columbia Banking Systems First Quarter 2026 Earnings Conference. 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 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to turn the conference over to Jackie Bolan, Investor Relations Director to begin the call. You may begin. Thank you. 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 columbiabankingsystem.com. During today’s call we will make forward-looking statements which are subject to risks and uncertainties and are intended to be covered by the safe harbor provisions of the 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. We’ll now hand the call over to Columbia’s Chair, Chief Executive Officer and President Clint Stein.
Clint Stein (Chair, Chief Executive Officer and President)
Thank you Jackie. Good afternoon everyone. Our first quarter results reflected continued execution against the same core priorities we have previously outlined, delivering consistent, repeatable results, optimizing our balance sheet and returning excess capital to shareholders. We also completed the PAC Premier Systems conversion and consolidated nine branches during the quarter, putting us on track for full realization of all acquisition related cost savings by the end of this quarter. I want to thank our highly experienced team of associates for their months of meticulous planning and the seamless execution of this key integration milestone. Our operating results for the first quarter reflect the continuation of momentum established late last year as solid CNI production offset a decline in below market rate transactional loan balances. We also reduced our reliance on wholesale funding as customer deposit balances expanded despite seasonal pressure typical during the first quarter. The resulting mix shift in both assets and liabilities fortifies and positions our balance sheet for sustained attractive returns over time. Our banker’s proven ability to generate balanced relationship centric growth in deposits, loans and quality fee income is driving sustainable earnings growth. We do not need to produce net balance sheet growth to achieve our epsilon and rotce objectives. Columbia’s cost conscious culture further enhances our top quartile profitability profile. Beyond savings associated with the PAC Premier acquisition. Our expense base reflects continuous fine tuning. We remain disciplined in identifying offsets that create reinvestment dollars for initiatives that drive revenue and enhance efficiency. AI is becoming an important tool for driving efficiency across Columbia. During our Pacific Premier Core Systems Conversion, we used AI to automate work that traditionally would be completed manually. Historically, time consuming conversion tasks such as reviewing and validating thousands of data fields were automated and completed in a fraction of the time historically required. Instead of relying on manual checks and custom coding, AI helped us move faster and reduce complexity, which shortened review timelines and improved execution. More broadly, AI is helping our technology teams work more efficiently. It allows our developers to move faster, test changes more quickly, and write software that is more secure. The result is higher productivity and better outcomes without adding incremental resources. We also enhanced our customer support experience with an AI powered virtual assistant. Our ratio of human calls to AI powered agent chats moved from 2 to 1 in favor of humans to 3 to 1 in favor of AI agents as many routine administrative questions are now handled by the virtual assistant. Macroeconomic headlines continue to dominate the industry narrative, often driving outsized stock price reactions and unilaterally treating all banks as the same. We are not all the same and Columbia’s fundamentals warrant differentiation. Over my tenure at Columbia bank, we have repeatedly demonstrated the ability to withstand industry stress as we consistently turn disruption into opportunity. During the global financial crisis, Columbia delivered strong credit performance while leveraging FDIC assisted transactions to grow and strengthen our franchise. Since then, we have continued to expand our customer base through both organic growth and strategic acquisitions. Our best in class low cost core deposit franchise consistently ranks in the top quartile when measured on both cost and mix of non interest bearing balances. More recently, we successfully navigated the banking sector volatility of March 2023, again another point in time where many regional banks were treated as one. The Columbia team navigated this volatility without a discernible adverse impact to our business while simultaneously executing a successful systems conversion. Just three weeks after closing the UMPQUA acquisition, our credit fundamentals remain sound. Our office portfolio continues to perform modest uptick in Our CRE exposure, which is attributable to acquired portfolios, continues to decline. Turning to another closely watched area, our NDFI exposure is minimal, well below peer averages and underwritten with the same conservative and consistent rigor we apply across our broader loan portfolio. Our first quarter results marked the beginning of our third consecutive year of stable operational performance and strong organic capital creation. Given our current capital position and strong forward outlook, we increased our pace of buybacks during the first quarter returning $200 million to our shareholders, underscoring our belief that the best investment we can make at this time is in the stock of our own company. Looking forward, we will continue to execute on our established priorities, optimizing performance, driving new business growth, supporting the evolving needs of existing customers, and consistently delivering superior returns to our shareholders. I’ll now turn the call over to Ivan.
Ivan
Thank you, Clint and good afternoon everyone. As Clint highlighted, our first quarter results reflect continued execution of our strategic priorities. Turning to Slide 10, we reported earnings per share of $0.66 and operating earnings per share of $0.72 for the first quarter on an operating basis, which excludes merger, expense and other items detailed in our non GAAP disclosure. First quarter pre provision net revenue and operating net income increased 45% and 50% respectively compared to the first quarter of 2025 due to the addition of Pacific Premier, continued progress on our balance sheet optimization targets and disciplined expense management. Turning to Slide 11, average earning assets were $60.8 billion during the first quarter, coming in at the midpoint of the range that I outlined in January. As continued, balance sheet optimization contributed to modest contraction relative to the prior quarter. We modestly reduced cash as planned during the first quarter and utilizing excess balances to reduce wholesale funding sources, which declined by 560 million from December 31. Although wholesale funding declined as of March 31, balances were higher on an average basis during the first quarter due to typical seasonal customer deposit flows. Overall, the results were as anticipated, reflecting a balance sheet, a stable balance sheet outlook and a remix in our loan portfolio out of transactional and into relationship based lending. Following the modest earning asset contraction during the first quarter, we expect the balance sheet size to remain relatively stable with commercial loan growth offset by contraction in the transactional portfolio. Slide 12 outlines contributors to the sequential quarter change in net interest margin. Net interest margin was 3.96 for the first quarter, right at the top end of the range that I outlined in our last call. While the headline net interest margin is down from 4.06 last quarter, recall that our net interest margin in Q4 benefited from an 11 basis point impact of the amortization of a premium on acquired time deposits and an accelerated loan repayment pro forma. For those factors, we were roughly flat quarter over quarter and relative to the first quarter of 2025, net interest margin has expanded by 36 basis points, reflecting the impact of our balance sheet optimization strategy. We exited the first quarter with an improved funding mix relative to the fourth quarter and expect ongoing balance sheet optimization to drive net interest income growth and net interest margin expansion with the first quarter setting the low water mark for 2026. As I outlined in our Last Call, we anticipate our net interest margin to grow modestly in Q2, crossing over 4% at some point in the quarter. Our latest interest rate modeling continues to show that our balance sheet remains neutrally positioned to interest rates on Slide 13, and you’ll note that we have over $6 billion in fixed and adjustable loans set to reprice over the next 12 months. Not interest income in the first quarter was $83 million on a GAAP basis and $81 million on an operating basis as detailed on Slide 14. Within our guided 80 to $85 million range, the sequential quarter decrease was driven by lower swap, syndication and and international banking revenues following the strong performance in the prior quarter. Despite that, operating non interest income is up 25 million or 44% relative to the first quarter of 2025 from the impact of Pacific Premier alongside strong growth in fee income streams. As Tori will highlight later, we continue to expect non interest revenues in the low to mid $80 million range for Q2. Slide 15 outlines non interest expense which was 369 million on an operating basis excluding intangible amortization of $41 million. The first quarter’s $328 million run rate was below our guided range due to the earlier realization of cost savings following January system conversion as well as some planned investments which fell back into Q2 as of March 31, we achieved 102 million of the targeted $127 million in synergies. Although these savings were not fully run rated in the first quarter’s results. Excluding CDI amortization, we expect non interest expense in the 335 to 345 million range for the second quarter before declining in the third quarter as we realize all cost savings related to the transaction. By June 30, CDI amortization will average around $40 million per quarter. Moving on to Slide 16, provision expense was $28 million for the first quarter, reflecting loan portfolio runoff, credit migration trends and changes in the economic forecast used in the credit models. Relationship in the agricultural industry drove a modest increase in net charge offs and non performing assets relative to the fourth quarter, with our overall credit metrics remaining stable and healthy. Slide 17 details our allowance for credit losses by portfolio with coverage of total loans at 1% at quarter end and 1.28% when credit discount on acquired loans is included. Turning TO Capital Slide 18 highlights our regulatory ratios at quarter end, our CET1 and total risk based capital ratios declined modestly to 11.5% and 13.3% respectively, down approximately 30 basis points from the prior quarter end as our regular dividend and increased buyback activity outpaced capital generation during the quarter. During the first quarter we repurchased 6.5 million common shares, returning 200 million to our shareholders as of March 31. Our capital ratios remain comfortably above well capitalized regulatory minimums and our long term target ratios. We have excess capital of approximately 500 million and 400 million remains in our current repurchase authorization. Tangible book value declined slightly to $19.03 from $19.11 as of December 31, reflecting a higher accumulated other comprehensive loss on our securities portfolio. Given interest rate changes between periods, we expect share repurchases to remain in the 150 to $200 million range per quarter through our current authorization. Overall, we are very pleased with the financial results for the first quarter driving a 1.3% ROAA and over 15% ROTCE. We feel well positioned to drive strong profitability through the remainder of 2026 as our balance sheet optimization activity and continued share repurchases enhance long term value creation. With that, I will hand the call over to Tory.
Tori
Thank you Ivan Our teams had another strong quarter of business generation as new loan origination volume of 1.2 billion was up 38% from the year ago quarter. As a result, Columbia’s commercial loan portfolio inclusive of owner occupied commercial real estate increased 6% on an annualized basis, contributing to the continued remix of our loan portfolio toward higher return relationship based lending as transactional loan balances continue to decline. Although payoff and prepayment activity in the first quarter slowed relative to the fourth quarter’s elevated level, first quarter slowed relative to the fourth quarter’s elevated level, declining balances in the transactional portfolio contributed to slight overall loan portfolio contraction to 47.7 billion from 47.8 billion as of December 31. We continue to expect relatively stable net loan portfolio balances in 2026 as we optimize our balance sheet for sustainable profitability improvement. Turning to Customer Deposits Our team’s ability to generate new business and strong quarter end inflows offset seasonal deposit pressure during the first quarter resulting in $110 million of increase in customer balances as of March 31st. Our small business and retail deposit campaigns continue to bolster our deposit generation and our current campaign has generated nearly 450 million in new balances to Columbia through mid April. Further, the HOA business we acquired from Pacific Premier provided a countercyclical benefit during the first quarter as balances seasonally expanded, increasing nearly 160 million since year end. Customer balance growth and the cash deployment Ivan discussed contributed to a $760 million reduction in broker deposit balances as of quarter end, accounting for the decline in total deposits to 53.5 billion from 54.2 billion as of December 31st. Although customer fee income decreased following our strong fourth quarter performance, our results highlight the notable progress we have made over the past year driven by the addition of Pacific Premier and our continued efforts to expand the contribution of core fee income to total revenue. As Ivan discussed, operating non interest income increased significantly between the first quarters of 2025 and 2026 with an exceptional growth in financial services and trust revenue, treasury management, commercial card, merchant income and other recurring customer fee business. Our core fee income pipeline remains healthy, as do our loan and deposit pipelines, and we remain outwardly focused on generating business in a disciplined manner. I will now hand the call back over to Clint.
Clint Stein (Chair, Chief Executive Officer and President)
Thanks, Tori. I want to take a moment to thank our team of talented associates for their hard work and and contribution to our ninth consecutive quarter of solid financial performance and consistent results. Relationship driven loan and deposit growth and our balance sheet optimization efforts are creating tangible earnings results as evidenced by our net interest margin expansion over the past year. This concludes our prepared remarks. Chris, Tori, Ivan and Frank are with me. We’re happy to take your questions now. Dede, please open the call for Q and A.
OPERATOR
Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. And our first question comes from Jon Arfstrom of RBC Capital Markets. Your line is open.
Jon Arfstrom (Equity Analyst at RBC Capital Markets)
Thanks. Good afternoon everyone. Hi John. This all looks good, but maybe loans and margin, I guess. Can you guys talk a little bit about the billion two plus in originations? Kind of where that’s coming from in general trends? It seems maybe a little better than a typical first quarter. But just give us an …
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