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Columbia Banking System(COLB) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net loss of $14 million for Q1, primarily due to merger expenses and an initial allowance for credit losses (ACL) provision of $88 million [20][30][34] - The tangible book dilution was larger than expected, but the anticipated GAAP accretion and return on tangible equity increased significantly [38][47] - The net interest margin (NIM) for March was reported at 4.31%, with an adjusted NIM of 3.55% excluding accretion [23][12] Business Line Data and Key Metrics Changes - The loan portfolio's loan-to-value ratio is 57%, with an average debt service coverage of approximately 1.75 times for non-owner occupied properties [1][2] - The FinPac portfolio's delinquency and charge-off activity remains concentrated in the trucking sector, with expectations for elevated charge-offs in the upcoming quarter [4][5] - Excluding FinPac, charge-off activity at the bank remains minimal, with classified asset ratios increasing but not indicating notable changes in classified asset balances [5] Market Data and Key Metrics Changes - Total deposits declined by 4.9% in Q1, attributed to market liquidity tightening and inflation impacts on consumer spending [58] - 41% of deposit balances are in noninterest-bearing accounts, with consumer balances making up 41% of the total deposit base [7][8] - The company has a robust liquidity position, with total available liquidity of $17.9 billion, representing 121% of uninsured deposits [40] Company Strategy and Development Direction - The merger with Umpqua Holdings Corporation has reinforced the company's position as the largest bank headquartered in the Northwest, with a focus on expanding banking relationships and enhancing long-term organic growth opportunities [30][34][17] - The company aims to achieve $135 million in annualized cost synergies by the end of Q3 2023, with $25 million already realized in March [38][48] - The company is committed to supporting communities through a five-year, $8 billion community benefits agreement [34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the office exposure due to the portfolio's characteristics, with past due and non-accrual levels remaining low [2] - The company anticipates continued growth in new account balances despite a net contraction in deposit balances during the quarter [9] - Management noted that the economic environment and changes in credit forecasts will influence future provisions [135] Other Important Information - The company completed two branch divestiture projects and successfully converted core systems, which are expected to enhance operational efficiency [32][33] - The company has a diversified loan portfolio with strong credit metrics, and the average office loan is $1.3 million [16][15] Q&A Session Summary Question: Can you provide details on the expense run rate and expected cost synergies? - Management confirmed a $25 million run rate for March, with an additional $21 million expected in Q2, aiming for $135 million in annualized cost savings by Q3 [69][70] Question: What are the expectations for capital accretion and potential buybacks? - The company forecasts a capital build of 20 to 30 basis points quarterly, with no buybacks anticipated this year due to market volatility [71][73] Question: How are deposit flows trending in April and expectations for growth in Utah? - Management noted a slight decline in retail and consumer deposits in early April, but positive signs of new business flows and deposit promotions were observed [65][75] Question: Can you elaborate on the office portfolio and underwriting standards? - The office portfolio is primarily located in the Puget Sound area, with stringent underwriting criteria for larger loans [100][108]