All right. Good morning, everybody. My name is David Feaster. I'm a member of our banking research team here at Raymond James, and we are very pleased to have Columbia Banking System here with us. The bank's a high-quality West Coast franchise, a tremendous core deposit base, and a strong organic outlook. It's just recently closed their transformative acquisition of Umpqua, creating a $50 billion asset bank with incredibly strong profitability. The deal just closed last week, we are extremely excited to have you here with us and give us all the details. You know, from, you know, you also have a lot going on with the conversion here, which is scheduled for in a couple of weeks here.
You don't have much going on, so thank you for joining us. You know, from the company, we've got CEO Clint Stein, CFO Ron Farnsworth, and Director of IR Jacque Bohlen. We're going to host this as a fireside chat today. If you have questions, feel free to jump in. Let's make this interactive. With that, let's just jump right into it. Man, it's, you know, what a relief having gotten this deal closed. I know it was quite an ordeal, frustrating and, but it's done. And I'd argue in today's world that this deal makes as much, if not more sense than when you first announced it.
I guess, could you maybe just talk about, you know, given the economic backdrop, given the rate environment, you know, some of the things that you're more excited about with this combination today than when we first talked about it?
Yeah. No, it was a long time coming. some of you, there's some familiar faces out here, and some of you have heard me say this that, you know, I shared with Cort O'Haver a couple of months ago that I was in my forties when we announced the deal. I turned 52 this year. You know, and, you know, it was right before I turned 50.
Yeah.
You know, it illustrates just how lengthy of a time it was. Yeah, the rate environment is different. You know, when we contemplated this merger, it wasn't trying to time it around any sort of environment. We've been bankers for a long time. We know that, you know, on average, every seven years, you're going to go through a business cycle. Even with the rates, I mean, there's a lot of conversation on rates. If you look back, you know, over the last 100 years, you know, we're coming out of and we're still on the low end of what normal rates would be.
From that perspective, you know, it illustrates that purchase accounting is broken. Ron Farnsworth, our CFO, is over there. He'll be available afterwards for two or three hours if anybody wants to go through the details of purchase accounting and why it makes no sense. That's really the major impact that's different from what we expected. It's all geography.
Yeah.
The economic impact or the earnings power of the company, it hasn't really had a, you know, change those assumptions. What we've learned. I was pretty excited when we announced the deal based off of, you know, a few months of diligence and conversations and getting to know people. Post-announcement, spending time in the various markets, meeting leaders and bankers throughout the Umpqua system, that's really the quality of what I saw with the senior leaders and the executives. It's throughout the whole company. Learning more about the sophistication of the treasury management and payment solutions capabilities, that has the bankers that came from Columbia really excited.
You know, the question that I get asked a lot is, "Okay, what surprised you? You know, what are you gonna unwind?" There's really, you know, there's really nothing that's a negative surprise. It's just been reinforced with more time, more interactions, that this was the right deal for our two companies.
You know, we've spent a lot of time talking about the complementary nature of these two businesses. You know, as you've gotten into this, I mean, has that only reinforced that expectation and as you've gotten deeper into these two businesses, I mean, have you identified other opportunities, "Man, I didn't even think about that at the beginning. This will be really cool that we can roll out," or any other cross-sell or synergistic opportunities?
Yeah. No, that's absolutely been the case. You know, when I mentioned, you know, the treasury management platform and payment solutions, you know, there's, you know, the ability to offer purchasing cards to our commercial clients. I mean, that's huge. Our bankers are really excited about having that. You know, the example that we zeroed in on early on was, you know, the ability to have, you know, a leasing platform-
Right.
for, you know, our clients, not just we talk a lot about it in the healthcare space because we have, you know, roughly $1 billion of loans in that sector, and doctors love to lease equipment. Our retail branches are really excited and to have the capabilities of FinPac. You know, there's a host of other things. Being able to take our wealth management platform and layer it across a larger customer base, creates opportunities as well. We didn't model, we didn't include in the model, revenue synergies, obviously.
It's pretty exciting to see how bankers from both companies have embraced what the other company's bringing to the table, and that's back to that, you know, complementary nature.
Yeah.
You know, not identical, and not contradictory to philosophy, just very complementary to what each individual company was doing.
That makes a lot of sense. You know, uncertainty is, you know, a difficult place to operate in, especially in terms of employee morale, and I'm just. You touched about being visible across the footprint. What are some of the things that you've done to help keep that up, to keep employees engaged? I mean, it's hard to make some management decisions when you're just kind of in this purgatory spot. Just what are some of the things that, you know, that you did to address that issue? Then, you know, again, you touched on it a little bit, the pulse of your clients and your employees, now that the deal's closed.
Do we have any Ted Lasso fans here? It's the hope that kills you. The, that's, that was the biggest challenge with the protracted timeline was the uncertainty. You know, we had people that wanted to retire.
Yeah.
You know, they planned a summer vacation.
Yeah.
They replanned a fall vacation.
Yeah.
They thought, "I'm gonna have ski season.
Yeah.
You know, that's it. It was unfortunate to see, you know, that, you know, they didn't have certainty around that date. We had folks that didn't have go-forward roles.
Yeah.
You know, they're ready to start their next chapter in life, and they weren't able to do so or didn't have certainty around when that was going to happen. You know, what we did is we over-communicated, frequent town halls, town halls again, throughout the footprint as time went on. We about, well, about this time last year, we started working on the combined culture. We had it ready to launch in early summer. We went, I think we just finished the last one about a month ago. We did about 16 culture workshops throughout the footprint. Put about 4,000 associates through those.
That was one benefit of having.
Yeah.
was on day one, everybody in the company, knew, you know, who our stakeholders are. They know what our corporate values are and what our purpose is.
Yeah.
That work would've been done.
Yeah.
either way on that timeline. Had we closed, you know, in the middle of last year.
Yeah.
that would've been a work in process, and that might've created some additional anxiety for people not knowing what kind of company.
Yeah.
you know we were gonna be.
One of the other really impressive things is, you know, often in, in these types of deals, I know everybody, you know, some other banks around you were licking their chops ready to pick off some lenders. You've actually recruited, expanded in market and into some ancillary markets. You know, it's pretty impressive the way that you've been able to recruit. What, what is attracting new lenders to Columbia, especially at a time when, you know, when the deal wasn't even closed?
Yeah. Well, first, it was even a little surprising to us that we had the amount of and the quality of bankers that from the outside that saw what we were building and wanted to be a part of it. There is some disruption, you know, in the marketplace with some other competitors that were going through merger activity.
Mm-hmm.
reorganizations and things. So that opened the door. You know, I think they see, you know, a 50-plus billion dollar institution in the, you know, eight western states that's continuing to grow. That's got a great reputation for, you know, having a solid culture, being a great place to work. Then, you know, the banking community is pretty small, and, you know, they know each other, you know, in the different markets, so word of mouth.
Yeah.
I mean, our high performers are the, you know, our best referral source.
Yeah. Yeah. The deal's now closed. You know, the for you to be able to keep that March conversion date intact is extremely impressive. I know, you know, again, you don't have much going on, so thank you for being here. How were you able to do that? I mean, you know, the Integration Management Office, I know that helped. You know, how were you able to keep that conversion date intact? What are some of the things that, again, maybe this time played into your favor in some regards, some of the guardrails that you've put in place to help minimize disruption?
Yeah. Subtle pressure and a refusal to hear that we're going to slide it to a backup date. No, in all seriousness, you mentioned the IMO.
Yeah.
You know, we're very fortunate that with the experience and level of M&A that both companies had previously done, to have two senior Members of the executive team lead that. You know, they have other duties that they're focused on, but their primary purpose and focus for the last 18 months, and it started, you know, actually pre-announcement, was when this March conversion date was set, and they started working towards that immediately. What it's really, I guess I know the individuals, I know their skill set, their experience, how well they're working together.
It doesn't, you know, it wasn't like I ever doubted that as long as we were closed, we were going to hit that conversion date. What I am really pleased with, and it was what we were hoping we could achieve, is by setting up the IMO that all the planning and the noise of, you know, integrating processes, new policy, planning for the systems integration, all of that is handled by the IMO and our customer-facing bankers have been focused on continuing to, you know, grow the business, take care of the client, and in a very much a business as usual manner.
Yeah.
I think that gets back to your prior question of attracting talent.
Yeah.
You know, there wasn't a disruption in the ability to grow and take care of our clients within either organization.
Mm-hmm. Maybe just stepping back a little bit. I mean, when we first talked about this deal, I mean, the pro forma earnings power and the profitability of this thing was pretty impressive. We had no rate hikes baked in there. If you step back and start thinking about the rate environment, again, maybe I know your conservatism when we go in with guidance. How do you think about the pro forma earnings power of this franchise and the profitability as once we get this thing? I know you haven't provided formal updates, but how help us think about that?
Yeah. We did put, a pro forma, updated the pro formas, as of 12/31, you know, last week. In terms of the earnings that we were expecting, the first full year, relative to where they're going to be, I'm still very comfortable with where we're going to end up.
Yeah, maybe just touching on technology. This has been a major driver in a lot of other MOEs. This wasn't in yours. It might create some opportunity on the tech front to maybe accelerate some investments, bring some other technologies. Could you maybe just touch on the tech front and, you know, again, technology is arguably more important today than it has been in a long time. Some of the things that you're excited on the technology front coming out of this.
No, you're right. I think it was early 2021, I had a banker call me and they said, "We got to do something. We fell behind on technology. We can't catch up.
Yeah.
That's not the case here. You know, specific to Columbia, we had contemporary platforms. You know, we changed out our consumer online banking platform in 2017, our treasury management system in 2018. All the other kind of things that I think of as bolt-on type solutions, we had. When we were implementing technology, we were looking at, all right, can this scale to $30+ billion? On the Umpqua side, they were looking at technology and saying, "It needs to scale beyond $50 billion.
Yeah.
When we're sitting here at roughly $52 billion today, the platforms that are in place, and we had some similar platforms.
Yeah.
We both use the same, consumer online platform. There's not a gap.
Yeah.
There's, you know, there's a new loan origination system was just rolled out within the Umpqua environment. You know, that's probably something that would have been next on a standalone basis.
Yeah
...for Columbia to address. That's already there.
Yeah.
It's really, I think future technology needs will be just maintaining those platforms, making sure they don't become stale.
Yeah.
Like, what's the next bolt-on? What's the next Zelle that-
Yeah
...you know, adds efficiency or convenience to our customers and saves us money in the back office?
Yeah.
Those will be the types of investments we'll make. I think technology is important, but it's a tool.
Yeah.
In our business model, we lead with that relationships. I spend a lot of time, you know, as you know, out through our markets and meeting with our bankers and our clients. That's the thing that's universal, and it's been that way at Columbia. The opportunity that I've had to do calls with Umpqua bankers, same thing. It's not the sign on the building, it's the person and that's what they want to make sure.
Yeah
...with the merger, that they're still going to be able to deal with, you know, Kevin and Tyler or Todd and Stacey and...
Yeah. That, that kind of plays into the next question I wanted to ask you. Let's touch on deposits. Obviously, deposits look, it looked easy for the past couple of years. In zero rates, everybody's flushed with deposits. Deposits are more valuable today than they have been in a long time. I think, you know, the strength of your core deposit franchise is really underappreciated. I guess, could you maybe just touch on the competitive landscape, on the deposit front? What, what from your perspective has enabled you to be so successful defending your deposit base?
I was in Central Oregon a couple of weeks ago, and there was a credit union had a billboard that for a 9-month CD at five and a quarter. I couldn't see the fine print, you know. I don't know if it was like, for bal ances between 99,000 and 101,000.
Yeah.
You gotta buy a toaster.
Yeah.
What. That's the kinda stuff that's out there. I think for us, that's not really our target customer.
Mm-hmm.
You know, we've always been skewed towards commercial first, C&I, and that's why we have the wealth management platform, is so we can bank the owners. You know, it's something that we started in 2007. We incorporated deposit gathering, and goals into our commercial bankers' incentive plans. We stopped calling them lenders at that time and started calling them bankers.
Yeah.
You know, that's been something that's just baked into our DNA. Umpqua Bank, likewise, under Tory Nixon leadership did a similar shift. That was what? 2016, I believe.
Yeah.
So that's why today we sit here with, 48% of our deposits are commercial, 43% non-interest bearing. A lot of those are operating accounts. They tend to be less price sensitive and harder to move.
Yeah.
because it's more of a relationship than a transaction.
Yeah. I guess, how do you think about managing deposit costs going forward? You touched on this a bit. You know, and your strategy to grow core deposits. You know, you're coming at this from a position of strength, right? I mean, we're sitting here, you've got plenty of liquidity. The deal in some regards helps that in that, you know, you've got all the rate marks, you've taken all the pain. So you're coming at this from a real position of strength. I guess, how do you think about managing deposit costs, continuing to drive core deposit growth? Then, you know, from a retention standpoint, does it feel like most of that rate sensitive borrowers are gone out of the system?
You packed a lot into that.
It's a lot there.
I'll answer the portion of it that I want to.
There you go.
You know, It comes back to staying close to the client-
Mm-hmm.
Understanding, you know, if they have excess liquidity sitting there, what do they intend to use it for? We've seen some are using their own liquidity instead of borrowing it at current rates. What we're really mindful of is, you know, tracking to make sure we're not losing relationships.
Yeah.
You know, because if liquidity is coming out of the system, we're gonna continue to see that, I think, for a while. As long as we're not losing relationships, or missing opportunities, rather than have it go to, you know, Raymond James, if it's gonna go into, you know, a brokerage side, we can send it.
Yeah.
Keep it through our plaform.
Yeah.
You know, and then it's just through that process, remaining disciplined on rack rates and prudent with great exceptions.
Yeah.
things of that nature.
How does being a $50 billion bank change that equation, right? You know, now we're going, you got opportunity to move upstream, you know, to have more treasury management solut ions. At the same time, you're talking to more sophisticated clients that wanna get paid for the cash that they have. How does being a larger institution play into that?
Yeah. It's I think it's a continued progression of if you go back in time and you look at, and I'll speak specifically to the history of Columbia, and you look at how the deposit base got it. Over the years has gotten less retail-
more commercial. you know, it's everybody's non-interest bearing % crept up because rates weren't meaningful.
Yeah.
When you look at what's sitting in there, is it a bunch of consumer, low balance consumer checking accounts, or are they corporate, you know, operating accounts? You know, I think that being over $50 billion does allow us to go up market, on both sides of the balance sheet. They are more sophisticated, but they also have larger operating accounts. They have, you know, maybe, through the treasury management side, if we get their merchant account and some of those things, you can drive additional fee income and. I think it's a tailwind for us.
Mm-hmm.
You know, and the other side of it too is a lot of these larger companies have operations up and down the West Coast or, you know, through the Intermountain states, and that's our footprint.
Yeah.
We're where they are.
Maybe let's switch gears to lending. You know, you and Umpqua both had really strong paces of organic growth. I think, you know, exceeding a lot of expectations in terms of what you're able to add from a loan growth perspective. You know, fourth quarter, you know, we saw loan balances decline. I guess, what's your appetite for loans here? Where are you seeing good risk-adjusted returns, and how do you think about the organic growth profile of the combined entity?
Yeah. you know, the, it was almost a, frenzied, insatiable, appetite...
Yeah.
-for earning assets. You know, in 2020, 2021, when all the liquidity was flowing into banks and, you know, we saw, you know, we saw banks get very aggressive on pricing, structure. You know, towards the back half of last year, when liquidity started coming out of the system, a lot of that stopped. In the fourth quarter, we still walked away from $200 million of production because we didn't either think the rate was-
Yeah.
we were getting paid for the risk or the structure wasn't there. We saw one of the large money center banks do a 10-year fixed rate loan below the 10-year treasury, you know? You still see a little bit of that. I chalk that up to it was quarter end, and it was somebody had, you know, a goal they had to hit.
Yeah.
That's where for us it's about, you know, maintaining that discipline and understanding that that growth for the sake of growth doesn't necessarily create long-term shareholder value.
Yeah.
We're focused on the things that will do that. We've intentionally slowed down transactional type lending, and we're just saving our dry powder for relationships and, you know, primarily leading with C&I.
Yeah.
That doesn't mean that's all we're going to do because if we have a C&I customer and maybe their wealth management business and, you know, they want to buy a piece of land or something.
Yeah.
we'll do that.
Now, maybe touching on the other side. I mean, how do you think about credit? 'Cause I mean, you have a great reputation as a really strong underwriter, a really good manager of credit. How do you keep that discipline at being a larger bank, combining two banks together? How do you think about the credit culture and keeping that strength at this institution?
There's a couple of, a couple of things that I'd highlight there. One, you know, in the, if we think about, you know, one of the retirements that we had last week when we closed, was Columbia's Chief Credit Officer.
Mm-hmm.
he'd been in the role almost 19 years.
Yeah.
You know, a lot of the metrics that you see, how we've performed, you know, even into and coming out of the Great Recession, you know, were a direct result of Andy's influence. Frank Namdar, who's the Chief Credit Officer at Umpqua prior to the merger and is the go-forward Chief Credit Officer, he and Andy both kind of started in their credit backgrounds at U.S. Bank. They have similar foundational thoughts about credit and risk and what they expect to see, you know, in terms of.
Yeah.
-of, you know, activities from the account officers and, you know, the analysis that gets put behind it. I think from a, from a culture standpoint, it's very similar. You know, and I think you see that with the performance. You know, Umpqua's had great credit performance as well.
Yeah.
I mean, FinPac kind of skews that a little bit, but when you look at the risk-adjusted returns, they're pretty solid.
Yeah. Yeah. Maybe shifting gears to capital. Obviously, you know, the rate marks impacted the tangible book in the short run, you're going to be accreting capital back at a really fast pace. I guess, how do you think about your capital priorities as we come out of this? Historically, you've utilized basically every method of capital return, how do you think about capital? you know, obviously it's an uncertain economy, how are you thinking about capital return?
It's so the biggest challenge that we've had from a capital standpoint, is keeping the levels down to our long-term target.
Yeah.
You know, on a standalone basis, our long-term targets were about the same.
Okay.
You know, what we've said is going forward, we focus on total risk-based capital because from a regulatory standpoint, that seems to be the constraint. Take any of those measures and add 150 basis points to what you need to be considered well capitalized, and that's our long-term goal.
Yeah.
We may be on either side of that from time to time.
Yeah.
That's as we think about those targets and, you know, I have the benefit of seeing your model.
Yeah. Which is perfect, right?
Ron's. The capital accretion, that's gonna be the challenge is keeping those ratios from going too far north of those long-term targets. You know, first and foremost, stability of the regular dividend, that's always going to be a priority for us. Buybacks when, you know, when it makes sense for us to do that. We have used specials at Columbia. That'll be a conversation we'll have to have with the board and, you know, kind of see where we're at. Organic growth.
Yeah.
I mean, there's a tremendous amount of opportunity in some of the markets that are outside the Northwest. I mean, in the Northwest too, but, you know, with what we have in Southern California, Arizona, and then through the Mountain States.
That makes sense. We got about time for one or two questions if anybody has any.
Can you talk about what you're seeing in your markets in terms of on the asset rate from other two months to the one out real quick? Just the way like construction and some of the more conservative areas that you're seeing certain credit there and like that.
You know, I think everybody's kind of pulling back. I, and I think it's, you know, just that liquidity is tightening up and, you know, I, we're not seeing any stress in, you know, in our own portfolio in construction or hearing things now. You know, we are, you know, hearing that labor is starting to free up, and that's probably a good thing because that's been a constraint. You know, it's been labor and materials that have made construction pretty expensive. But nothing that's, you know, where people, I guess, are getting kicked out of their current bank and trying to find another bank or anything of that nature.
Thank you all for coming. We've got a breakout session downstairs if there's any other questions, but thank you for being here.
Yeah. Thank you.