Thank you for being here. We have another afternoon fireside chat with Clint and Ivan from Columbia. I wanna thank you guys for being here. I know you've had a full day of meetings, and we're just gonna go over some strategic questions and see how you guys are doing. Maybe, Clint, we can start this out. I'd like to give the opportunity to give a 30,000-foot view of the company so everybody understands what Columbia is and what you're all about.
Yeah. Thanks for having us, John. See a lot of familiar faces, so I'll be brief on the overview. We're headquartered in Tacoma, Washington. You know, little over 350 locations throughout the eight western states. 300 of those are in the coastal states of California, Oregon, and Washington. Recently completed our acquisition of Pacific Premier Bank, which, as I've described it, kinda rounded out the franchise that we envisioned. Pretty excited about we had a very successful systems conversion a couple months ago. The team is productive, excited, happy to be part of Columbia.
you know, now that puts us kinda focused on what's next and how we view that is, as I've mentioned, our franchise is now complete, so it's really about just fine-tuning it, making it the best that it can be. you know, if you think back, and you've followed us for a long time, you think back to, you know, four years ago, four and a half years ago, when we announced the Umpqua acquisition. since then, you know, we've effectively put three very large banks together. just a product of that, we have some processes that we know we can streamline, advances in technology that we can help along those lines.
That's the stuff that we did in the past. We did it in 2018, 2019. If you recall, we'd come out of a period of doing 10 acquisitions over 10 years, and just had a lot of, when you're constantly integrating a company, there's a lot of things that you wanna get around to, and you never get around to it. It's nice to have a moment in time where you can just hit the pause button and kinda work on making the franchise that we have the most it can be.
Mm-hmm. Okay. Good. Western economies, maybe give us an update. There's obviously a lot of crosscurrents in terms of the, you know, economic news and the macro news. How are you feeling generally about the footprint, the health of the footprint, and how are borrowers, generally feeling?
Yeah. Broadly, really feel really good about it. You know, I always say, if you don't watch the news, you're not on social media, life's pretty good.
Mm-hmm.
I think you know last year was a great example of the liberation day and the tariffs and customers were trying to figure out the impact of that they kinda pulled back and especially in the coastal states. There was a lot of hand-wringing. In the intermountain states they just kept doing what they do. They weren't really impacted by that. We did see an impact in terms of our pipelines and things with our bankers during the middle part of last year. That started to rebuild.
I think business owners finally just said, "There's always something, and you know, we have to always manage through whatever's coming next." Rather than putting their expansion plans or their projects on hold, they started to move forward. We started to see pipelines rebuild in late summer, early fall. We had a pretty solid fourth quarter from a C&I growth perspective. We've seen that momentum carry into the first quarter here.
Mm-hmm.
I think if there's any kind of thing that I'm just monitoring, it's really the business climate in Portland and Seattle. What I mean by that is business is really good. Businesses are doing well. We're not necessarily in the most business-friendly place to be. Longer term, we wonder, you know, what kind of impact will that have on businesses that have the ability to move. I just saw a headline earlier today that Yamaha is leaving California after 50 years.
Mm-hmm.
You know, you think about some of the companies that have left those three major states where we have a lot of presence and, you know, you could list companies in all three states. There's still a lot of vibrancy, so I don't wanna paint a negative picture. That to me, I always have to give you something, you know, not just tell you that it's all sunshine and.
Yeah
and roses. That's the one area where I'm just kinda taking a close look at and-
the Washington tax.
Yeah. Which one?
Is there more than one?
Oh, yeah. Last year, the governor signed the largest tax increase in state history. This is all tax and spend. You know, if you look at the amount of spending increases they've had over the last six years. Last year, they passed a tax bill. In Washington, you have a business and occupation, so it's like a gross receipts tax. That increased our state tax liability by about $7.5 million. I think the tax you're probably talking about is what was just passed, which is the personal income tax, 9.9%. They say it's only going to affect 22,000 people, but I bet you about 18,000 of those 22,000 leave the state.
You worry about where the threshold ends up. Another concerning one is you may recall prior to COVID, they had. They called it the Amazon tax, the head tax that the city of Seattle was trying to pass. There was a huge pushback from the business community on that, and they didn't enact it at that time. What they did is they put it in place during COVID when nobody was paying attention. With our presence in the city of Seattle, it cost us $a few hundred thousand. Now they wanna do that statewide, and that would be $several million.
That's the good news for us, or the fortunate part for us is that with our size and our footprint, we're doing business in a lot of very friendly states.
Mm-hmm.
We can, you know, move some of those positions around. If they're non-customer facing especially, we can put them anywhere in our footprint. We have options. Yeah, that's kind of the climate. It's a race to see who can outdo one another between California, Oregon, and Washington.
Yeah. Okay, okay. Good. Ivan, the new CFO, what are some of your key priorities in the finance office perspective, and what are you thinking about for 2026?
Yeah, it's a great question. I appreciate you asking it. First of all, you know, the team that I inherited is chock full of, you know, really talented folks that have been with the company for a long period of time. What Clint and I talked about when we got to know each other about a year ago is really just pivoting from a team that was very good at reporting the news and looking down at the numbers to one that is much more strategically oriented and helping the business kind of really deep dive and get under the hood and start to think about what happens next and build, you know, scenarios around that.
You know, we had an opportunity with some of the transition in the team to bolster our treasury organization. I was really excited to announce a new leader, actually earlier this week in the Arizona market, as a new corporate treasurer. That's an area where we're building up the team and building up some of our capabilities in terms of looking at the balance sheet and thinking about different scenarios there. We're also gonna kickstart a quarterly business review, where we're gonna deep dive and really get under the hood, attaching kind of the business performance and metrics and what we're seeing there into the strategic plans that we have across our business platforms.
Those would be just a couple of the areas that we're spending some time, you know, going a little deeper.
Okay, good. Thank you for that. Clint, on driving new business growth, I know we just talked about some of the puts and takes on the economy, but it feels like you have a lot of optimism on what's possible from a growth perspective. I know you still have a little bit of mix shift on the balance sheet, but talk a little bit about where the opportunities are, where you're growing, what kind of potential do you see for growth for the company.
Yeah, we've been getting a lot of questions in our meetings about growth. I tend to think about activities. What are the activities of our bankers? Are they doing the right things? Because over time, we've seen, you know, businesses sell, you know, you can have record production and maybe your growth is a little bit muted because of, you know, you had a few businesses that sold and paid you off or something. If we do our job, we keep them as a wealth management client.
I think about, like, winning in the different markets and who we compete against, there's not a bank that competes or that has a presence in our market that we haven't gone head to head with and beat. I think that's a great position. You know, when you think about just our market position in general, there's only four of us in our size category west of the Mississippi.
Mm-hmm.
That gives us an advantage. As one of our new associates from the Pacific Premier acquisition stated right after it closed was that, we're big enough to take care of all of their needs, but small enough to care. That differentiates us in terms of if you're, you know, with a B of A or a Chase or Wells, you don't get that same access to the top of the house, to senior leadership. That's something that a lot of these business owners have built their own companies on, relationships, looking somebody in the eye and knowing that they're gonna be there and help you succeed and help you grow your company.
They get that opportunity with us, and it's meaningful. When we look at the different markets, you know, each market presents different opportunities. The one thing we're excited about with Southern California is that we had a very limited presence there, and because of the limited nature of that, we were more up market. With what we have now as a result of Pacific Premier, it's very granular. It's very much like what Columbia, historic Columbia was in terms of where you're on the lower end of the spectrum. It gives us, in that market and as a company, a lot of granularity, but then diversification.
Some of the business lines that we have, we look at, and this is some of the work Ivan's doing. I think he's making Chris and Tory nervous because he's arming himself with data and then asking probing questions about why aren't we doing more with this customer group or that customer group, and creating opportunities, and it's some of the stuff that Drew Anderson, our Chief Administrative Officer who's with us today, some of the stuff that he's doing in terms of using technology to remove friction from either the employee experience or the customer experience so they can be more focused on taking care of the customer, growing their portfolios.
Just a lot of collaboration and momentum in the company, and I guess that's probably the best word to use, is we have a lot of momentum. You know, always wonder what's next, right? Like, is this little skirmish that we're in now, is that gonna cause people to retrench? So far we're not seeing it. If nothing breaks in the economy, I think we've just we're set up really well for the year.
Okay. Good. Now, Ivan, maybe for you, just a couple balance sheet questions. Talk a little bit about the optimization.
Yeah
on the asset side and where you think you are. We'll get to liabilities, I guess, but talk about the asset side and where you think you are in that process.
Yeah, absolutely. You know, if you look at our total loan portfolio, you've got just under $48 billion of loans, and you know, if you think of that in two broad categories, you've got what we have in our disclosure is kind of a transactional portfolio, and right now, that's about $7.85 billion of loans that are hanging out there. We define that really as credit facilities, loan relationships, where that's all they have with the bank, right, is the loan. There's no deposits, there's no ancillary fee businesses, no other products or services they're using. They're not true core clients of Columbia Bank. You know, the thesis behind this is it's very difficult to drive a mid-teens return on capital on a relationship where all you have is the credit.
You know, we're seeing that kind of move off over time. We've got a great disclosure that our IR team puts together in there that talks about, you know, when those relationships will hit either their maturity or a repricing date. Generally what we're seeing right now, we saw just under $300 million of that melt off over the course of Q4, Q1 coming in a similar range. We anticipate something like $1 billion, potentially up to $1.5 billion of those transactional loans will move off over time. That stuff's coming off our books at a 4%-4.5% coupon, and is being replaced through what Clint talked about earlier, core relationship lending. It's coming in at 6%-7%. That fixed.
You know, that repricing is a significant driver of positive operating leverage. While you won't necessarily see the size of the bank or even our loan portfolio grow significantly, it's like the duck on the pond. There's a lot happening underneath the water to kind of keep us moving forward. That's generally what we're seeing right now. We literally monitor it daily, so I've got a report that I look at every single day that looks at the different components of that, and we can drill down and see what's happening there. Generally, we're still seeing kind of a high single digit, low double digit CPR on that book. That's the most, you know, meaningful driver from a earning asset perspective in terms of what's gonna drive our NIM upwards going forward.
Okay. Clint, how do you think about balance sheet size in general?
In general, I'll go back in time five ,six years ago.
Mm-hmm.
I felt like that we needed to double the size of our company to remain relevant long term. At the time, I think we were $18 billion-$19 billion.
Mm-hmm.
I was viewing longer than 10 years.
Mm-hmm.
Now we sit here today at, call it $68 billion. We've far exceeded what I thought. I still think that number holds true. At $40 billion you're always gonna be relevant, no matter what happens in a consolidating industry. Where we're at now, I'm very satisfied with that we have the scale, we have the talent on the team, we have the right bankers. Really it's about profitability. I'm not fixated on an asset size. I hear some of my counterparts talk about that they're driving towards a certain asset number. You know, what drives us is I have some profitability and market cap targets, and I'm not gonna share them.
The team knows what they are.
Yes.
How do we get there? We can get there by doing the things that we're doing, by completing the balance sheet remix, and that. Then, you know, I do think that bottom line growth will come back to us because of the types of activities that we're focused on. You know, by completing and optimizing that balance sheet, we're gonna be a much more profitable company. Hopefully that translates into, you know, the shareholders getting rewarded with a better valuation.
Mm-hmm. Okay. On the other side of the balance sheet, liability side, you put a lot of emphasis on optimizing the liability side. Where are you in that process, and what are you working on today? What do you need to be better at?
I'll start and then, Ivan can clean it up.
You know, I think that the funding stack, we have a phenomenal deposit base. Pacific Premier's was a mirror image. They were actually priced a couple basis points better than what we were. When we look at our customer deposits, you know, 33%, 34% non-interest bearing, you know, industry-leading pricing on it. I think that it gets diluted some because of the wholesale funding. A priority for me and why we're so focused on pushing out transactional loans off the other side of the balance sheet is to clean up that funding stack so that somebody doesn't see, they just see the quality that we have there. The other thing is, you know, on the capital side, you know, I'm a recovering CPA.
Me too.
Recovering CFO. I've recovered from being a CFO. I'm glad he's doing it and has to deal with CECL. I like things to be clean and simple. You know, I don't necessarily, you know, we have some TruPS we need to clean up, you know, inherited sub-debt that would be nice to get pushed off. Those are some of the priorities that Ivan and I have been looking at. Then longer term, you know, maybe it makes sense at our size. Maybe we, you know, put some preferreds on or something like that. I want to clean everything up first before we decide what that looks like. Broadly, that's an easier lift, I think, than, you know, the loan aspect. Because as the loans pay off, we can just push the wholesale funding off.
As we continue to make inroads with some of our retail campaigns that have gone very well, you know, some of the new customer acquisition that we're getting on the C&I side and bringing in pretty meaningful deposits, that can all help with cleaning up the funding aspect.
I was just going to, you know, say that the muscle memory that this company has around deposit portfolio management is very strong. I think you see the evidence of that through what we disclose in terms of, for example, like the beta that we've experienced so far. We've had a 54% beta. You know, my personal thesis is that, you know, it'll get more difficult for the industry as a whole as we continue to go down the curve there to drive strong betas. You know, that's just one data point. That happens very fast, right? When we have those FOMC meetings, it's not just finance jamming down a target. It's the business. It's the product teams led by Drew. It's the finance and treasury organizations coming together.
I think what that allows you to do is it's like three yards in a cloud of dust, right? It doesn't happen overnight. As you go quarter-over-quarter, continue to grow that core deposit book, it allows you to optimize the funding stack. We still have opportunity, right? I think we're a company that's got, you know, a margin in Q4, if you adjust for some of the one-time factors at 3.95%. There's still opportunity to optimize that because there's $5.5 billion worth of higher cost wholesale funding that's still sitting out there for us to get after it over time. I think that's the exciting part of it. We could probably talk about capital later, but that's the other kind of output of all that is it's a profitable company.
It's driving significant capital, you know, and with the outlook that we have in terms of fairly flat in terms of the loan portfolio allows us to do some pretty exciting things in terms of the share buyback program.
Yeah. We might as well talk about it. You stole some of my thunder because it's interesting that you feel unsatisfied and you're still working on the mix, but you're cruising to a 4% margin, which is, I think, an exceptional margin.
Yeah. What we've talked about from a net interest margin perspective is like the Nike swoosh, right? Every Q1, it's the most difficult quarter of the year. Deposit seasonality is kind of at its low ebb in terms of the average deposits throughout this quarter. You have that higher reliance this quarter relative to other quarters on higher cost funding channels. What we've guided to is somewhere in the ballpark of a 390-395 type margin for Q1. Just like you saw last year, kind of a stair step up. The engine behind that really is what we've already talked about, right? That loan remix occurring on the loan side of the equation and then continued discipline and growth around core deposit funding. That's pretty exciting, right?
You've got an opportunity from where we sit to have positive operating leverage half to half. Revenue is going to go up from the first half to the second half with that net interest margin story. You've got expenses actually coming down a touch from first half to second half with the completion of PPBI, the successful integration that the team led, and then the tail on synergies that will come out here over the course of Q1 and Q2.
Yeah, that's a great outlook. What's the message on capital accumulation or capital distribution from this point?
Well, I think it's a continuation of where we're at. We have a very healthy dividend. Unfortunately, the dividend yield's gone up over the last couple weeks, but very stable. We have absolutely zero concerns about being able to cover the quarterly dividend. We announced the $700 million buyback in October and immediately got to work on that. We've completed the amount that we were expecting to do for the first quarter here. Continue to execute on that aspect of it. I think the key to that message is even when we do all of that, we still have over $600 million of excess capital. It's not a one and done program.
It's something that I think that especially why we're in this period over the next 12 months-24 months of remixing the balance sheet that we're going to generate way more capital than what we can reasonably and prudently deploy. We're gonna return that to our shareholders.
How did you come up with the $700 million number?
A lot of modeling.
Mm.
Looked at the number and it, you know, 'cause again, we're still above our long-term targets. If we even at, I mean, we're gonna, between the dividend and the buyback, we're gonna return about $1.1 billion to shareholders this year, and even at that, we're still above our target. When the team was putting in numbers and it was, you know, there was a whole range, and of course, we stress tested it and, even in our severe stress scenario, still didn't get us close to, you know, to those long-term targets. I said, "Well, we should do more then." That's what we took to the board and that's where we ended up.
It's like going back to the old Columbia, right?
Yeah.
Yeah. Yeah.
Yeah. That's another point too, you know, is that the best investment we can make, and I've said this, is in our own company, buying back our own stock, right now. You know, at some point, if our valuation reverts back to where it was historically and it's at a premium and that doesn't make sense, well, then the next lever that we'll pull will be special dividends.
Okay. I know the answer, but, you know, M&A appetite. Anything you wanna say on that?
Yeah. I think there's a lot of chatter. I think it's gonna be good for a lot of banks, but it's not for us. We've done our work. You know, I said Pacific Premier's was the missing piece. Our franchise is complete and I'm really excited about the things that we're working on internally that are gonna improve efficiency, improve our profitability, and you know, and also the investments we're making in Utah, Colorado, and Arizona, those de novo markets. We have some phenomenal people there and we continue to attract great talent. So that's where we're gonna put our focus and our energy, and if there's any M&A that creates disruption in our marketplace, maybe we benefit from it, maybe we don't.
We're certainly winning much, much more than we're losing out in the marketplace today.
Yep. Consistency, that's the theme.
Yep.
Okay. Ivan, anything on credit? Anything to note on credit? I mean, there's still a little bit of cleanup to do, but it seems like you guys are on a good path.
Yeah. Yeah, I should have mentioned it earlier. That transactional portfolio, it's not like a good bank, bad bank thing. It's really, you know, just the nature of those being transactional only loans. There's no real credit concerns. In fact, that's, you know, pristine from that perspective. We don't have a big software lending business, so we're not in that, you know, that bubbled up. MDI is less than 1% of our total assets. Not big in the private credit space, and so, you know, as the different news media kinda hotspots have moved around, you know, there's really nothing there that we've kinda been exposed to or worried about in that regard.
I think the one, you know, area that we always kinda keep an eye on is the agriculture side, 'cause there's always some component of that that's struggling and some part that's doing well. You're subject to mother nature there. That's always kind of one spot where we keep a close eye, but other than that, you know, expect another solid update here.
Okay. Good. Anything else you feel like we haven't covered that we need to cover?
I think it's, yeah, I think you've been pretty comprehensive as usual.
Okay. Good. I know you guys have had a lot of meetings and lot to talk about today, but thank you for being here. Appreciate it.
Yeah. Thank you.
Thank you.