COLB - NASDAQ

Good day, and thank you for standing by. Welcome to the Columbia Banking System First Quarter 2025 Earnings and Pacific Premier Bancorp Acquisition Announcement Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you would need to press 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. 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, Delim. Good afternoon, everyone. Thank you for joining us as we review Columbia's first quarter results and the announced acquisition of Pacific Premier Bancorp. The news releases and corresponding presentations 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 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 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 2025. 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. Defined 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 activity. 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 nonrecurring 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 complementary 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 fifty-first to number 10 on a pro forma basis. As outlined on slide eight, 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 a 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. The combined organization will operate under the unified brand of Columbia Bank, as Umpqua Bank will change its name to Columbia Bank later this year. 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 noninterest-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 diverse 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, maintained our strong credit profile, and built 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 $0.41 per share, and operating EPS of $0.67 which excludes the 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 3.6% in the first quarter. Wholesale repayments were largely executed in March. Our provision for credit loss was $27 million for 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. Noninterest income was $66 million for 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 noninterest income of $56.9 million for Q1 was up $2 million as last quarter's loss on sale of loans did not repeat. Total GAAP 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 a $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 nondeductible 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 twenty-one and twenty-two in the deal deck detail 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 pretax cost savings which represents 30% of Pacific Premier's noninterest 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 Pacific Premier's gross loan portfolio, $327 million on held-to-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 deteriorated 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 ten 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. Slides fourteen and fifteen 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.

Hey, thanks, Ron. As you've heard me say many times before, the criteria Columbia considers in any transaction that it makes financial sense for our shareholders, is complementary or additive to our business model, and it needs to be culturally compatible. Our partnership with Pacific Premier is consistent with all of those criteria. Our focus remains on optimizing our financial performance to drive long-term shareholder value. Our capital position continues to build, and our regulatory ratios are expanding in line with our expectations. Our CET1 and total capital ratios were 10.6% and 12.8% at quarter end, well above our long-term targets. Our operational performance continues to demonstrate our ability to organically generate capital well above what is required to support prudent organic growth, and our regular dividend. We expect our acquisition of Pacific Premier to enhance our capital generation capabilities and drive additional flexibility for future return to shareholders. This concludes our prepared comments. Chris, Tory, Ron, Frank, and I are happy to take your questions on our first quarter results. And Steve Gardner is with us for acquisition-related questions. Dalim, please open the call for Q and A.

Thank you, sir. Star one one on your telephone. To withdraw your question, please press star one one again. And I show our first question comes from the line of Chris McGratty from KBW. Please go ahead.

Oh, great. Good afternoon. Clint, I got a I guess, an opening question for you. You're you're roughly two years removed from the close of of the Umpqua deal. I guess I'm interested in what experience you can bring from that deal to this deal. I know you talked about this being a little bit of a market extension, but maybe the the upside potential and then maybe the risk that you're monitoring. Thanks.

Yeah. Hi, Chris. Know, we we have a slide in the in the deal deck that highlights our m and a experience. And and when I say ours, specifically, Steve's m and a experience and my m and a experience, but also that of our teams. And and since 2010, each each organization has done 10 individually done 10 acquisitions. And so with each one of those, you learn something. And you have a playbook. What's unusual here is to have a counterparty that is is as seasoned or more seasoned than than than what we are. And so when you look at at at that track record, it gives you a lot of confidence in your ability to adapt to to whatever comes at you that's a surprise because there's always something. But more more specific to the merger integration that that that that we we wrapped up. You know, I started talking last summer. That that the integration aspects, the social aspects of of of the Columbia Umpqua integration were largely behind us. And you know, conventional thinking is it's a two-year process for that to happen. So I I feel like we we accomplished it about six months ahead of time. Look at the consistent operating performance that we drove throughout 2024, carried that into the first quarter here of '25. And so everything that that we've we've experienced and what we've been communicating over the past several quarters is that we're in a business as usual operating mode. That the integration was fully behind us. And and it was a much heavier lift. Because if you think about every single individual in both companies was impacted by by the Columbia Umpqua merger. Here, there's still an impact but it it's it's not it doesn't impact and distract or have the potential to distract every single person doing every single job in both companies. So I don't want to I don't I don't want to make light of of of the the any integration is challenging. But also Steve and I have spent a lot of time talking about and and and speaking with key members of his team about how to make sure that that we execute flawlessly on this, and and we have a great plan. So I I I'm just very confident in our ability to to do this, and I think the environment is is also conducive to to to to doing that as as well.

Great. And then I guess my follow-up would be a little bit of a regulatory angle. Are you 70% you're going to be 70% in assets pro forma? I guess two-part question. Is is there any expenses either gross or net, that you're allocating to preparing for a hundred billion? And then secondarily, what's the CRE concentration gonna be pro forma? I know that's a a big issue once you get closer to a hundred, and and Steve was right around 300. So I'm interested in that kind pro forma number. Thanks.

Yeah. So so we have we have a road map in terms of of preparing as as as we skate towards a hundred billion. And that and that road map was put in place really as as we crossed $50 billion. And and and it doesn't mean that we've we've significantly ramped up expense or that we'll need to significantly ramp up at $70 billion. So there's not like an expense cliff that comes with with this. But what it does mean is that that we have to start skating to where the puck's going because there's there's no, you know, there's no phase-in period for the regulatory aspect crossing a hundred billion. At $70 billion, my my my argument would be we're only 70% of the way there. But I do I do think that we'll accelerate some of the components on our on our road map, but it's nothing that will be meaning a meaningful adjustment to your expense models or or anything like that. At at this point in time. And then we just have to wait and see. You know, there's a lot of lot of moving pieces right now in the regulatory framework. And you know, a hundred used to be two fifty, and I don't know if that happens again. But but I think that there's just we we're in pretty consistent conversations and and constant contact with with our regulators at the regional office as well as as nationally. And and and so, you know, I I think that in the time period that that we're going through waiting to to close this. Thresholds could be different. But we're not counting on that. Just so you know.

Great. And then the the performance CRE if you have it. Thank you.

Oh, yeah. The I think it's 330. 325, and and if you take out the multifamily, which which both both companies' multifamily books are are pretty much the same workforce housing, rock solid credit, you know, I think that then that number drops down to 168 or somewhere in that that level.

Okay. Thank you.

Thank you. And I show our next question comes from the line of David Feaster from Raymond James. Please go ahead.

Hi. Good afternoon, everybody.

Hey, David.

Obviously, this is a very complementary deal. It brings some nice fee income lines, which you alluded to, some some new lending verticals, expands into some markets that you were already going to. You touched on a few of those things that Pacific Premier brings. I I was hoping you could elaborate maybe on where you see the most opportunity to add value utilizing some of their core competencies across the combined franchise or leveraging Columbia's expertise across their their footprint. Just kinda curious what where you see what where are you most excited about?

I'll I'll start and then see if Chris and Tory wanna wanna actually give you give you more more details. The thing that excites me the most is and and I said it in my prepared remarks is this this accelerates what we had hoped to be able to achieve in Southern California, in particular, by over a decade. And and and and and that's not just that's just not something we're putting we're saying just because it it it it is impactful, but it's been about a year and a half that we've been trying to solve for how do we get more infrastructure for the bankers that we already have in that market. And and I said in my comments that they've done a phenomenal job, they have, with very little you know, very, very limited infrastructure. South of the grapevine. And so for eighteen months of of work and trying to find the right places and figure out where our existing customers are and and and and, you know, good prospective customers. We identified you know, less than a half a dozen sites at that point in time. And so if you just roll that forward and think about how do you get and build a footprint, that's that's not only the the the the sheer number of locations, but the the size and scale of what Steve and and and his team have have built in that market. It's easily a ten-year push to do that. And then when you combine that with some of their their their businesses that you know, where they're just they're they're just ahead of us in in things, you know, HOA banking is is is is one area that know, Chris and and some of his team have been trying to unlock the secret sauce to that. And and, of course, you know, Steve and and and the PAC Premier team have a very robust there. And and and there's there's other things. And then also we think about of the things that we're doing on the small business side that have been impactful. You know, on on our current operations over the past five quarters. And how we can, you know, leverage that and have that as an accelerator of growth. So I've kinda given you the appetizer now. I'm gonna step back and let Tory and Chris serve serve up the main course on what the specifics are.

Yeah. Thanks, Clint. It's Tory. I'll I'll jump in real quick. I mean, I've been honestly salivating over the Southern California market for a decade, and just the the sheer number of companies of all sizes, the density of it, it's just it's such a just such a wonderful market to be able to be a part of and to be able to grow into. We will immediately get brand awareness strength and just share in the market, which is is just gonna support both of us as we as we kinda come together, to grow. I mean, specifically, you think about some of the product capabilities that we combine, we'll be able to to expand. You got the leasing business. I think a a little different offer on the commercial card front. You've got international banking front just a little bit different as as we come together. You've got the growth from the scale of our balance sheet. So you know, as similar to Umpqua and Columbia coming together, you know, we've got the capability to grow with those customers as they grow. And, you know, we're you know, we're not gonna we're not gonna pass on, you know, $2,030,000,000 deals as companies grow and need that from a lending standpoint. So we got the capabilities to serve the customers as they grow so we grow with them. And so I think those things combined with, you know, inheriting a great group of of bankers at Pacific Premier, I think, is just gonna be a wonderful opportunity for us.

Yeah. And, David, this is Chris. The acceleration of the HOA program is a that's a huge one. Light years ahead of where we are today. The complementary nature of the custodial trust business and being able to look at how our fiduciary business there and the investment aspects that we put into that as well. And we've been expanding into the market down there, and this just accelerates that. Clint started touching on retail small business. Think what we've shown in the last four campaigns of what we can do with our approach to the market. Really looking forward to the opportunity of getting in there training, up the team and the relationship strategy and then seeing what we can do when we turn that loose. You know, we've we've talked about the market and the potential I think there's a lot of a lot of tremendous opportunity there. And then we'll be full service, and we'll bring, we'll bring the mortgage business into play as well.

That's great. And and, you know, Columbia, you you guys have had that that slide in your deck talking about longer-term balance sheet optimization opportunities. Obviously, we're gonna have the the Pacific Premier balance sheet marked. Are you considering any asset sales or optimization efforts to you know, to help improve profitability and and maybe accelerate that optimization that you've already identified, or is is that just some conservatism in these numbers and optionality that you guys have? Because I don't think that's in those pro forma numbers.

No. No. It's not. But it but but David, as usual, you've you've zeroed in on some of the the key aspects of of you know, it it it provides flexibility. Know, not only does it does it act as a as a as a balance sheet restructure on on the the the PAC Premier balance sheet that then gets accreted back through earnings as opposed to being a hard-coded loss. But it also creates flexibility for us do some of the things that we've been talking about for the past year or fifteen months on on optimizing our balance sheet and just the the expanded earnings capability of of a pro forma company also gives us the the potential to look at things a little bit differently, for in in that regard. And as as we've mentioned, the deal doesn't require any additional capital. And we've already been growing capital fairly substantially over the last two years. And and, you know, that that growth should accelerate as well.

Okay. That's great. And then maybe just last one for me. A higher level one. You know, we've got an extremely volatile backdrop today. You know, you got the trade wars and all that going on. Just kinda high-level question for you, Clint, is how do you get comfortable underwriting credit today? I mean, the good news is I've always looked at Pacific Premier as a very low-risk balance sheet, very conservatively underwritten. Obviously, there's a healthy credit mark. Here too through the the marks, but I'm just curious. How did how did you get comfortable around the credit side of this deal?

Frank could hardly wait to unmute his mic. He's sitting next to me, and and and so what what what I'll start with is is is by saying I think you hit the nail on the head that Steve and and and his team have demonstrated a long demonstrated track record of of superb credit performance. And that was something that that we dug very, very deeply into. And and because Frank Frank likes to be bored, and he likes to sleep well at night. And he and he's also very conservative and and has a strong track record in credit. Performance. And so I don't wanna steal this thunder. So I'll I'll I'll I'll I'll go on mute here and and and let Frank give you some details in terms of the extent of diligence that we conducted.

Thanks, Clint. I mean, there there's no thunder to be stolen here. I I I was I was really excited to see the the results and the diligence that we that we conducted. We looked at over 61% of their loans. And and was pleased to find out. I mean, they really had a a really similar underwriting and credit philosophy to to us here. Their policies were were very much aligned with ours. Their application of credit policy was was very close to how we apply our credit policy. And probably the most important thing in in in underwriting through through any credit cycle and the ability to continue to underwrite through any credit cycle is to have a leverage averse credit culture within the portfolio. And underwriting. And it's it's not p and l's that get companies through credit cycles. It's the strength of the balance sheet. And and time after time, we saw within the credits evaluated a low leverage posturing of these of these companies similar to ours. So so it it gave me great comfort to see all of that. And and not a lot of existing issues within the within the either. So clearly, both companies stay ahead of potential credit problems by staying close to their customer base. And and that's really the best way to do it is stay in close contact with them. And and I noticed a very active portfolio management and monitoring philosophy similar to ours. So I I don't see I don't see any surprises with PAC Premier's portfolio nor do I nor do I with ours. I think both companies are very much on top of their portfolios and that will enable us to lend through any cycle.

That's great. Everybody for all the color, and congrats on the deal.

Bye. Thanks, David.

Thank you. And I show our next question comes from the line of Matthew Clark from Piper Sandler. Please go ahead.

Hey. Good afternoon, everyone.

Hey, Matt.

This is my first question around your financial targets on a pro forma basis and maybe the lessons learned from the Umpqua deal? I know this is only about a third of your size. Relative to Umpqua. It's a lot larger. But anything you know, you might do differently this time around to ensure that you get these targets because you know, they look they look fairly strong.

Well, we we start with all of your estimates. Not yours specifically, but, you know, consensus estimates and and so I I guess you know, as as we look at the environment changes, you know, we had, what, 550 basis points of rate increases from when we announced the, Columbia merger. Hopefully, we we won I expect that we won't have a seventeen-month waiting period. And and and two, would hope that we wouldn't see that kind of rate volatility. But but but I guess that's the the the the thing that I'd I'd wanna make sure people are aware of is that consensus estimates have come down. I mean, you know, not for the industry. And so when we build these models, and everybody does it, they use consensus estimates. And so there's always going to be some variability. Now in a in a stable environment, you know, our forecasts are probably not terribly different maybe a little better, maybe a little worse from period to period than what consensus is. But there was a whole seismic shift in in the operating or the rate environment, and that's that's what really I think, led to to the differences. You know? So even despite the the volatility in the markets right now, what we're seeing from customers, if you don't watch the news and you're not on social media, life's still pretty good. Know? And so so so we're we're we're not seeing any type of major pullback causing us to rethink what our current forecasts are. I know our advisers went through our forecast, and I and I'm pretty pretty certain that Steve's advisers went through his forecast and our forecast and you know, we feel we feel pretty good about that we're gonna and deliver top-tier performance. Now as the market moves, maybe those ratios move around just because that's that's how it works. But on a relative basis, I think this is gonna this is gonna make a lot of money for a lot of people.

That's great. And then how about the buyback? I know, you know, we were kind of warming up to one sometime this year. Does this deal put that on pause? I mean, PBBI has a ton of excess capital. It's gonna use use all that capital to deliver the marks. But given that your capital kind of on a pro forma basis isn't gonna change materially, would you still consider a buyback this year?

So so what I said during our first quarter conversations was that I was pretty confident that there would be capital actions during 2025. And and I consider m and a a capital action. So without without without this, yeah, it's it would have been extremely likely likely that we would have have started initiating a buyback. Right now, I I our our our biggest focus is is get the deal closed, see where the capital ratios are, and then from there, relative to our long-term targets, make an assessment on on on a buyback. So I guess short answer is yeah, it probably does push it out. It's probably not a 2025 event. But you know, there's there's there's still some some variables in terms of of is this is this a year-end close, or is it a sooner than that type of close? And then where do the final ratio shake out? Right now, we expect a modest decline of you know, 20, 30 basis points from from our current levels, and our current levels are are you know, modestly above where our long-term targets are. So we still would expect that we'd be above those targets but I'd I'd hate to to go initiate a hundred or $400 million buyback and then find out that oh, you know, rates moved around and we needed to go out and raise $200 million of capital and deliver shareholders that that that wouldn't do us any good.

Yep. Fair enough. And then my last question just around any potential divestitures on PBBI's balance sheet. I know Steve has scrubbed that portfolio. Quite a bit. Over the years. And but is there anything within there, maybe franchise lending or maybe even multifamily you might wanna deemphasize, or do you feel good about the whole portfolio?

We feel pretty good. I mean, Steve and team have done a good job at the deemphasizing some of the things. You know, I think that's that's the other the other piece of it is is we've talked about that that we've we've run our company, we've built our company, to to to perform through cycles. And know, and and we've been waiting for a recession for many years. I don't consider 2020 a recession because of of all the stimulus that was pushed into the system. And and, you know, I think Steve also kind of built a fortress balance sheet and and tremendous amount of capital in anticipation of of some some form of economic slowdown, And as part of that, it wasn't just building capital, but it was also kind of pulling back from different areas of of their portfolio. So it's it's super super clean. Know? Yeah. On the multifamily side, we we could we could reduce CRE exposures by selling some of those that are marked. But they're gonna be at current market rates through purchase accounting. And there's absolutely zero credit concerns on those. So I don't know that would necessarily do that. There are some things in the bond portfolio that that I think we're looking at that that that could provide some opportunities for us. And and then like I said, I think on one of my earlier responses is I think this gives us some flexibility with our our our existing balance sheet to maybe look at some things as well.

Great. Thank you.

Thank you. And I show our next question comes from the line of Timur Braziler from Wells Fargo.

Hi, good afternoon. I'm wondering how long the courting how long was the courting process for this transaction? And, you know, it it's pretty impressive to get a a deal announced in the midst of some of this. Volatility in the broader market. I'm just wondering more recently, did you have to update any deal terms, considerations, marks, did you have to recalibrate any parts of the transaction just given some of the market turbulence year to date?

We'll have all of that in the S-4 but what what what I'll I'll give you is that Steve and I started getting to know each other couple years ago, and and you know, just trying to assess my my my mindset at that time was executing on on the task at hand, which was the integration of Columbia and Umpqua. And I think, you know, if you ask Steve, and you can because he's here in the room as a reminder, his his thought process was probably around seeing if we could execute. On the task at hand. And and and once we both were at a point of where I said, yeah. We've executed, and he was able to witness it from a external viewpoint. Then we started talking about the possibility and when timing might be right. And, and I I would say as a kind of a a full-on approach and endeavor, it really started at the first of the year. And so here we are in the in the fourth month. But I'll lean back into our our both of our experience in m and a I think both teams and and boards were able to see through the the short-term market noise and volatility and really focus on where the long-term shareholder value could be created. And so I think we ended up remarkably close to where we originally started. But, yeah, it was you know, a wild ride with some of the market swings.

It was a very disciplined process, and I I think importantly here, that as a % stock deal this is a reinvestment opportunity. For Pacific Premier shareholders and an extremely attractive one. Because we firmly believe the upside here is significant. And so when you get two companies that have very similar cultures, operational areas, it really it makes for a relatively low risk, low execution risk in our minds. And and so, yep, yes, there was certainly a lot of volatility both in the equity markets, also the debt markets, and that had an impact. But given that we had a long-term view here, and this is a reinvestment, we thought the process throughout was very collaborative. And really pleased where we we ended up.

Okay. Great. And know, obviously, a very different transaction from Umpqua Columbia deal, but know, that took longer than expected. Here, you guys are expecting to close this in second half of this year. I guess, just can you privy us to some of the conversations that maybe haven't had with regulators in in framing that closing time frame?

Yeah. There's there's a body of evidence continues to build on deals getting approved quicker. And and for banks either our size or to create banks. That are our size. And so that that gives us a lot of optimism. And and the other thing is is is that we we had fairly robust preflight conversations with the regulators, both at the regional office level as well as in DC. And and you know, I'll I'll say I left those meetings very encouraged that it would be a much more efficient and trans more transparent process than what we went through last time. And and the other aspect of it is is we don't we don't expect a DOJ review, and and the DOJ review cost us eleven eleven months with the Columbia Umpqua one. So that right there is is is, I think, another data point that leads us to believe that getting this as close as a 2025 event is is is very likely.

Okay. And then just last for me, maybe for Frank, just looking at the the credit mark, it looks well below PBBI's allowance level. Can you just talk to kind of the methodology in coming up with that 80 basis point mark? Relative to what looks like almost one and a half percent reserve for PBBI?

Yeah. This is Ron. And as Frank mentioned earlier, obviously, quite a bit of significant amount of credit diligence. And reviewing ACL modeling, economic forecast, etcetera. Given the weight of the multi portfolio, the loss is just aren't there to support a higher level. That's how we weighted into that 80 basis points. In essence, 55% of the portfolio being multifamily is sitting at just under 60 basis points and even that's probably overstated. Just given the long-term lack of credit issues expected in that portfolio we're seeing over the history.

Got it. And that also jived with the with the due diligence activity as well looking out looking out three months, six months, that also factored into that number.

Great. Thanks.

Thank you. And I show our next question comes from the line of Jon Arfstrom from RBC Capital Markets. Please go ahead.

Hey. Thanks. Evening, everyone.

Hey, Jon.

Usually, we'd be neck deep in the nuances of your earnings. I guess, but what would you call out in your earnings for the quarter that you think went well and what you need to work on further and it it just curious your level of confidence in that '26 consensus estimate. I know it's our estimate, but what are some of the puts and takes to hitting that?

I think the the thing that that that I really looked at is is the deposit growth that we had and and what we were expecting you know, as as Ron said, you know, guiding into the the first quarter, that our seasonality could be up to a half a billion of of additional wholesale funding. And and you know, to have the the growth that we had and still see the seasonal activity. We could still see the patterns that we historically would, you know, because I mean, literally by by month and by the point in time in the month, it's bonus payments or tax payments or, you know, distributions, you can see the flows, and those flows are still there. So it wasn't like we didn't experience the seasonality, but the results of of our bankers both on the retail small business side, but also on the commercial side, made a difference for us. And I think that as we look at and and as we've said, really around the margin, which then drives a big portion of of of earnings, it's deposit flows that are going to to determine our level of of performance in that regard. So that's that's that's really encouraging. You know, from my my perspective, you know, I would have liked to have seen some more C and I loan growth you know, but I'm encouraged by year over year origination activity was up 17%. But unlike in the fourth quarter where the activities translated into really strong annualized growth. First quarter, it didn't. So Tore and I and and Chris are are are really watching closely. You know, there's still a lot of optimism in terms of second quarter, third quarter from our bankers and things they have in their pipelines. So but that's that's the area where where I'm I'm really looking. And then, of course, we'd always love to have more more core fee income. So I kinda hit the major ones. I'll look down the table and see if Tory or Chris wanna add anything.

This is Tory. I think the only thing I'd add to it is, as Clint talked about, the pipelines are pretty strong. Actually, there's a lot of momentum. And and we had, you know, we had some C and I growth as as Clint talked about that didn't book in the first quarter. They kind of got pushed last minute into the second quarter. But pipelines are strong. They're up about 10% from from end of Q4. So lot of good momentum. So I like to see that. And I think the fee income side, same. And we we've got some really good pipelines, both loans deposits, and in core fee income. So I think things are looking pretty good for us going forward.

K. Good. Fair enough. And then Clint, may a follow-up on Chris McGratty's question. Some of the feedback tonight has been that there's still more opportunity from the Umpqua merger. This could be a little bit too early I know that might be unfair, but curious where you think you're gonna push your people just to make sure you are ready. For for the merger?

So so the opportunity the unharvested opportunity from the merger is really around process improvement. And and we have a a a get better everyday type of mindset. Not change for the sake of change, but that do things better, simplify, more efficient, and that's that's that work will never be done. I would say some of the things that that we would have done maybe over a longer time horizon was the expense initiative and and reorg that we did in the second quarter of last year. So rather than than pacing that out, we we did that over a ninety-day time period. And so so that that that lift was done. But but, really, that's that's the it's kinda operator business. Make it the best that it can be, and we're never satisfied. We always think we can do something better. But in terms of of having our bankers on their front foot, out winning new business, competing in the marketplace. You know, continuing to invest in in in the growth of our franchise, whether products and services or technology, or, you know, our our our people. We're doing all of those things. And so it it it really is business as usual. So there's not a laundry list of of things that we have do and and and and that any of those get delayed by by this partnership with PAC Premier. The the one other element that's there is just the balance sheet remix. And and that's just a a matter of of when when rates cooperate or these things hit the maturities, hit the bid, and and and and get it done. So that's not anything that's a distraction or requiring a heavy lift on the part of of any of our team members that would then inhibit our ability to execute on this deal that we're talking about today.

Hey, Jon. This is Steve Gardner. You know, you you bring up an important point. This was very early on one of the primary questions that we as a management team and a board had, something that we did a lot of due diligence around was exactly where was the combined entity and where they ready to to take this next step. And and I can tell you, we have a high level of confidence in in the organization. Otherwise, we wouldn't be here today.

K. Very helpful. And I would just say for the record, I'm I'm happy about the name change. I think that's that's smart just to be under one brand. So for what it's worth. Thanks.

Yeah. Thanks, Jon.

Thank you. And I show our next question comes from the line of Jared Shaw from Barclays. Please go ahead.

Hey. Good evening. Thanks. Congratulations on the deal. I guess, you know, as we as we at the CRE and the work that you all have done to bring that concentration level down. Should we think that going forward, you're just more comfortable sitting at a higher level of CRE with this combination, or you know, as as sort of time progresses, should we expect to see that come back down to where where you are now?

You're you're gonna see a similar trend line that that you've seen over the last couple of years post Columbia Umpqua merger. You're gonna you know, if you go back further in time and you look at at at at deals that Columbia did, there there was always a downward slope in the CRE ratio just because the banks that that that joined us typically had a higher level. You know, Steve has a has a great slide in in his IR deck. Shows their history of doing the same thing of walking down those ratios over time. And and so I think we're in alignment in and, really, what's got got the ratio above 300 is is the the multifamily book. We're not opposed to multifamily. We've talked about stability in the in the in the quality of the of the credit. But what what I'm not a fan of is transactional multifamily, and and that's where you know, we still have you know, on our balance sheet today, about $3.7 billion of transactional multifamily. And I think Steve is still working through some on on his balance sheet as well. You move that down, and we're comfort comfortably below 300. So that's why I say you're gonna see you're gonna see that that that number come down. Now we're still gonna do relationship-based multifamily. For for customers where we have a a meaningful relationship, but that that activity won't won't keep pace with the runoff that you'll see in those other portfolios.

K. Alright. Thanks. Then could you just speak a little bit about the the cultural integration that you anticipate going forward? And and you what the alignment looks like with the the way the two banks do business and you know, maybe especially around some of the incentive structures for RMs. Is that similar to to what you have at at Columbia?

Yeah. I'm excited, I'm excited about some of the components that that the PAC Premier has in their incentive structure because I think it can enhance ours and and and and not enhance from a standpoint of just pay people more money, but align closer to actual desired outcomes and results. And so I do think there's a a a value that's placed on performance and execution at at PAC Premier. And those are the same things that that that we value. And so from a from a cultural standpoint, I I think there's there's there's there's really really good good alignment. One of the things that we did, we we gathered our our our senior leadership teams. What was that? The February, and we kinda talked through some major components of of of of each operation and each entity and and of the things that Steve walked through was was a deck on their culture. And the words are different. But the principles and the values are identical. And so when you when you start from a place like that, then then then I think that you know, that the nuance differences are are are very minor.

This is Tore. I I just wanna add one piece to this because I I think one of the things that I'm most excited about from a cultural standpoint is and I've been doing this business for a long time. And if you think about commercial bankers in particular, you kinda get two camps. One is somebody who just likes to make loans. And that's it. And the other is somebody who's really understands full relationship banking. And culturally, both companies are completely aligned. In the relationship banking aspect of that. And that that is kinda simple words, but it's a it's a much more difficult process. From from a sales standpoint. And and the fact that we are both so aligned, I think, is a very, very nice fit and will allow us to grow the combined company much faster and much better than if it wasn't that way.

And this is Chris. I'll add to that, Tory, that when you look at the cost of funds, you can tell a lot about how bankers go to market. And very similar to the way that we've done it, it's not leading with rate. It's leading with value. It's leading with relationship. And that, like I said, that comes through in the in the total cost of funds that you see on their specific Premier's books.

Yeah. It inspired Chris to sharpen a pencil on deposit pricing, and he saw Pat Premier's cost was lower than ours by a few basis points.

Yeah. And just finally for me, you know, when you look at LA and Southern California, is this the the the platform you you sort of need to to get to where you want to be? Or do you think that there will be additional hiring or, you know, is there an advantage of some of that market disruption from the last few years to to to grow the team beyond what what it will be now.

I think it's it's I can answer that that it's a little bit of both. So, you know, a $70 billion franchise that that has coverage from the Canadian border to the Mexican border. Has the density that we will have in know, what's the world's fifth largest economy, you know, top 10 pro forma deposit market share, and then our position just broadly in the eight Western states of of you know, there's there's there's a you know, before of us that are 70 to 80 billion, but the way that we go to the market is down the middle of the fairway commercial commercially oriented bank. I think that creates a tremendous amount of opportunity. And and we've seen it even with limited in infrastructure in that market. That we've seen the power of of of that market. And we've seen the power of being a billion-dollar bank in that market. So I I think it's it it just acts as an accelerant for what we've done. And then you take what the talent and the the experience in the market of of Steve's people. And and and I I think that it also kinda supercharges what they've been able to do. So I don't know that that you know, it it it's going to be a pretty dynamic company. It's gonna I mean, it's tremendous scarcity value, and we're going to be able to drive additional value in in in in that particularly in Southern California, but also you know, throughout throughout the the eight states that we have. And and then when we look at what's been really kind of interesting, and even when when we were going through the merger and why we're in the waiting period for the Columbia Umpqua merger, level of talent that sought us out that wanted to come and be a part of what we were going to create. And all we had at that point was a promise to create you know, the the premier business bank throughout the West.

This is Tore. I'm just gonna add one other thing here. Like, we we there is so much disruption in the Southern California market, and we will continue. We're gonna get 40 plus new RMs. They're gonna be great teammates, and and we'll just we'll keep looking for talent. And when we find talent that we think is accretive to the company and help take market share and grow, we're gonna bring them into the bank. We just recently hired a couple folks in Arizona. I think that they're gonna be fantastic for the bank. To Clint's point, you know, we just keep looking for for people that want a really good home. To to have careers. And I think that's gonna help us even further in Southern California.

Thanks.

Thank you. And I show our next question comes from the line of Jeff Rulis from D. A. Davidson. Please go ahead.

I guess checking in on on kind of the plan to open more branches. I guess, the first part of that question is, is that somewhat on hold with this deal? Do you see that through you've got too much to juggle or not? And then maybe the second question, and know Clint, you're fairly conservative, and you're going to take care of one thing before the next. But I guess it begs the question some of these states in the Rocky Mountain SWAT. You say you're accelerating Southern California expansion by ten years with this transaction. Does that open up the discussion to look for M and A to accelerate the Utah, Colorado, Arizona expansion through M and A, so that's part two. Thanks.

Yeah. So hi, Jeff. It it doesn't put our it doesn't put our our our De Novo branch expansion strategy on hold. We have two two locations in the Phoenix area right now that are are under construction. We have one in in LA that that I think also is a nice fit with with Steve's existing footprint, and that will move forward. We just opened Denver last month. We have Colorado Springs coming online. So those things will continue to move forward. And that's that's really a different mostly a different group in a different part of our company that that that executes on those De Novo branch openings. The what what what this does is it allows us to pivot our focus from a De Novo strategy in Southern California to the Intermountain States and and looking at some opportunities there. Because, again, we see some some disruption, and we've seen what our bankers have been able to achieve with limited infrastructure in those in those newer markets for us. And and and as I always say, they're earning the right for us to reinvest in in them and help them grow their franchise. And so I don't wanna give the keys to the strategic road map out across the conference call. But what I will say is is your your line of questioning aligns with our way of thinking is that it allows us to pivot those those other resources that are not necessarily involved in m and a type stuff. Towards those those newer markets and figure out some opportunities there to capitalize on on on what we're already seeing.

Okay. Thanks, Clint.

Thank you. And I show our next question comes from the line of Anthony Elian from JPMorgan. Please go ahead.

Clint, I'm curious what type of balance sheet growth do you expect from the combined franchise. Right? If I look at Columbia standalone, it's been pretty much a low single digit score the past couple of years. But you're adding Pacific Premier now, which is in higher growth markets. So what what level of balance sheet growth do you envision the combined company to eventually generate?

I think one of the things we'll have to to to work through is is this this rundown in those transactional real estate portfolios. And so that's both the the the the multifamily as well as the single-family resi book. You know, I I've I've I've said publicly that that single-family resi was too big of a portion of our portfolio. By virtue of being a bigger bank that helps us kinda start to right-size that. It gets us about halfway to where we wanna be, which is 10% or less of of of the book. So you know, bottom line loan growth will be muted some as those portfolios run run off. You know, I I would say that you know, if we're not on on you know, I would I would zero in on the c and I and the owner-occupied real estate portfolios. And and if we're not growing at at at at least the rate of double GDP, then I'll be disappointed. So I guess, if you have your your crystal ball and you can tell me what GDP is, and I can tell you in two years and three years what what I would expect for loan growth. But right now, you know, GDP is expected to be pretty muted, so I I say it translates into kind of low to mid-single digits.

Okay. And then my follow-up for Steve, I'm curious why PAC Premier is not going at this alone. Right? I mean, Clint outlined the attractiveness of Southern California in his prepared remarks. And I would just think that there's already a ton of growth opportunities for you available given the number of banks that have exited that market in recent years? Thank you.

Yep. It's a it's a good question. I mean, you're not it's certainly one of the important areas that the board has been considering from some time. Or some time is that what is the best use of the excess capital that we have in looking at organic growth, potentially doing some tactical things around the balance sheet and the wide. And ultimately, when we looked at it, and in particular, this this opportunity it it was readily apparent that this was would accelerate the returns that we generate for our shareholders in a very significant fashion. And I'll maybe fall back on one of Clint's comments earlier. Certainly, get ahold of the S4 proxy registration statement and and read through it. But really, it's the reinvestment that we have here is very attractive.

That's great. Thank you.

Thank you. I show our next question comes from the line of Andrew Terrell from Stephens. Please go ahead.

Hey. Good afternoon. If I could just ask maybe for Ron on the margin, just the from an organic standpoint, you had a big drop in the securities accounting this quarter. I would assume that's mostly due to rate volatility that we saw intra quarter. But, you know, if I if I step that back up from here, it seems like you could pretty easily get above your your kind of margin guidance over the over the near term. Just maybe wanted to get a sense of where the purchase accounting is gonna go or where you're expecting it to go, and then just your thoughts on the organic margin going forward.

Yes. Thanks. It's a great question on the bond portfolio, and it is interesting when you get a CPR that potentially is at zero, if not below. So it's just a complete slowdown in prepays. Could be related to the overall volatility in the markets. And that in essence pushed out the discount accretion. It didn't it didn't go away. It just delayed the recognition. Over time. So all else being equal, if there's stability, then, yeah, we would see potentially some additional discount accretion back between the last couple quarters levels. Which would help on that front. But if it continues I'd expect that to be continued to be safest depressed level for at least a couple quarters. Overall, though, back to the NIM question, you know, is we're pleased with the results in Q1. And like I said, we did pay down the $590 million of wholesale later in the quarter. So we'll see the benefit of that on them in Q2, but all else being equal, seasonally, historically, they were usually weaker in the first half of Q2, tax time, etcetera. It starts to build back up late in the second quarter. Quarter is always the best month. So overall, in terms of the NIM in in the last couple quarters levels, it's gonna be subject to how deposits flow over that time period. Are we able to continue to reduce wholesale.

Any change to I think you guys, last quarter, I think we were talking about a margin in the range of 3.55% to 3.65 trying to that level. Any any refresh to that?

This is what I just covered. Yeah. So so there's a deposit flows over the coming couple quarters. Those are better, we're able to reduce wholesale seasonally as as would show maybe in Q3, then that's definitely potentially in the upper end of that range.

Understood. Okay. The rest of mine were addressed, and congrats to both parties in the deal.

Thank you.

Thank you. And I show our last question in the comes from the line of Nick Coloco from UBS. Please go ahead.

Clint, just thinking about the CRE concentration conversation and the tendency for that to drift lower on the other side of deals that you've done in the past. Along with your increased focus on growing relationship-type C and I lending. As you were thinking about potential M and A activity, how did you weigh a deal of this nature versus potentially something that might have been more C and I focused that could accelerate your efforts your growth efforts there?

I think I think PAC Premier is c and I focused. And I think it gets back to if you look at you know, we'll zero back in on on the comment that that that Chris Merrywell said earlier about the deposit composition and and and and the pricing and the similarities. And so you you you know, you look at the activities that that the the Premier teams are engaged in today, and they very much align with a lot of a lot of what we do. In in across our our footprint today. So you know, the multifamily is a is a a a work walk down position for for Steve and and and, you know, and he I'm sure, will chime in on on on what their what their focus has been. But I think that it's similar to the the multiyear kind of process I've talked about with what we'll do with some of the legacy Umpqua portfolio of multifamily and single-family resi is takes time to burn that stuff off your balance sheet. And and I think a lot of this that that Steve has came through the a prior acquisition that he did, and and that's why I referenced the chart in his investor presentation where it shows over the years how they've walked that down. So know, I I and I don't know that you know, maybe there's one or two other franchises that that would be similar in terms of of what PAC Premier brings from a C and I perspective. But there's nobody that brings the density in and the core density in the in the in in the LA and Southern California markets. I mean, this is this is like this is like such a natural fit that you know, and I and you know, I I hate to index too much on the dots on the map, but when you go and you look at the slide deck and you see the complimentary nature of our footprints and where Steve has a little bit here in the Northwest, we have a little bit Southern California, and together it just fits. So probably not not the answer you're looking for, but to me, I think this was was was the deal to to do. I I think it creates the most value long-term for both sets of shareholders. And yeah, you know, and and that's that's I'm not worried about the the activities. What I wanna do is make sure that we keep the the great customers that Pacific Premier has and keep their talent and you know, as we say, our focus is keep our people keep our customers, and drive value for the shareholders. And that's what we're gonna be zeroing in on for the next twenty-four months.

Yeah, Nick. This is Steve Yarger. You may not be familiar with our institution, but similar to Columbia over the years, we do acquisitions, it typically does take our CRE ratio above 300%. It was well below that prior to the opus. Acquisition that we did in 2020. And took us up to 385%. We've been working that down. Probably just given the nature of the what has occurred with through the pandemic. And in the subsequent years, it's come down a bit more slowly. Than we have anticipated, but we are historically a C and I focused bank. And you'd really see that in in spades. Through the deposit franchise.

Understood. Thank you both very much for that. And then maybe just one final question on the regulatory front. And just thinking from the perspective of the Umpqua deal not having been that far in the distant past, did you feel any sense of urgency to get a deal done in this more favorable backdrop that we're in? Or did the stars just really align for the deal to come to fruition? Thank you both for your questions, for your answers again.

Yeah. I'm gonna say it's it's it's the latter. The stars just aligned. You know? And and and and I'll I'll I'll go back to, you know, Steve and I are very experienced in in in m and a, and we know and understand the importance of developing a a relationship with with your counterparts at these different institutions so that when the stars appear that they may be aligning that there's already a a familiarity and and you can have good candid honest dialogue and and and determine if the timing is right. And so you know, as I said earlier in the call and you know, we we it's been couple of years that we've been talking and and developing that relationship and you know, if if it would have been 2026 that that stars aligned, I think we would've done this in 2026. If it was 2027, we would have done it in 2027. But, the fact is is that, everything just kind of aligned in in analysis good of a time as any and and we believe that you know, whether you you you want however you wanna think about it, where we ended up, from a go forward pro forma ownership standpoint is kinda where we would have ended up regardless of when we did the deal.

Understood. Thank you, and congrats on the deal.

Thank you.

Thank you. I show no further questions in the queue. At this time, I'd like to turn the conference back to Jackie Bohlen, Investor Relations Director for closing remarks.

Thank you, Tulum. Thank you for joining this afternoon's call. Since we will not be hosting our traditional earnings call originally scheduled for tomorrow, please contact me if you have any questions or would like to schedule a follow-up discussion with members of management. A good rest of the day.