COLB - Earnings call transcript Q3 2017 | Columbia Banking System, Inc.

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to Columbia Banking System's Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, instruction will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. to call like host, to now Mr. would turn over the your I and of Executive Robbins, Chief Hadley President Officer Columbia System. Banking

Hadley Robbins

that Bank on Paige. we which into you, we market for review expected shareholder to Good everyone, third today's is us our Continental and merger we call all of closing approvals and regulatory Continental. The to on you XXXX November is the released this Subject before have X. forward pleased columbiabank.com. for Columbia. Thank conditions, of close available I'm We with received quarter as and on morning. our upcoming completed transaction thank Pacific website, customer afternoon, to opened look Pacific joining results, you the release the inform the merger to be our

is at teams prepare and date And conversion diligently both smooth banks set employees. transition for XX. to been for clients working a March our Our have

the continue both As brands. a of combined banking provide hallmark will organization, to has customer-focused the to we been and approach

we all of customer it's the that, of to acknowledge placing do. past, our in remains at the anniversary the As important as the our center company, future XXth we approach about

efficiency. relationships customers, continue on bank our the concentrating will to products and services order contemporary continue operating and technology We grow to ongoing making investments in to on with building in by necessary long-lasting our the provide increase the efforts

the of record the after-tax continuing Merchant for to quarter This have million period solid look net on the was portfolio. into that fit. achieved our good gain sale which $XX with million, the us. will We Card economic partners We income for Services includes of by and $X also expand franchise combining cultural acquisition another

remained $XXX during to $XXX contributed million, expanded the And During X.XX%. million. the also quality increased our continued operating levels. at Credit net basis successful in margin loans loan million net our generating a of points and at which low stable, nonperforming Deposits interest growth bankers were production on loans $XX quarter, quarter. X

call and Operating today earnings Clint update Credit about Clint I the Andy quick our and with announced credit Chief our details will activity Financial conditions. our will loan provide Officer, will Stein, Chief by our review Officer McDonald, On Officer. are performance. providing quality on me Chief conclude information. business And recently a

making be comments, It's our Following to are happy remind also answer today, subject which factors. and we'll and note questions. economic be prepared important forward-looking your to you that to statements we'll other

the filings talk forward-looking risks associated to I'd statements, particular, our turn this the point, about to performance. over to Form financial our our Clint refer to XX-K. For the uncertainties and discussion At with like of call please securities full and, the in XXXX

Clint Stein

Good afternoon, everyone.

Card legal $XX.X share, to reported associated X mentioned, occupancy, last There the $X.XX expenses, of and Services $X.XX common $XXX,XXX; were million diluted adding of advertising, other is of $X.X employees following the line million, $XXX,XXX; increased roughly quarter earlier the $X.XX expenses earnings gain $X.XX. items $XX,XXX; acquisition-related BOLI these were portfolio by a earnings $XXX,XXX; in just nearly The for under provision of sale to our recapture And tax EPS. reduced per were Hadley by $X.XX today, reported of our of and expenses earnings which handful third As earnings reported over the quarter. reported that acquisition-related quarter for impacted Pretax higher EPS of year. quarter items our $XXX,XXX a than record in $X.XX. we the these quarter or net former by of Merchant items data increased net our and to amount related to The by adding on impact adding losses the just EPS. earnings $X million $XXX,XXX, their million, The $XXX,XXX. items: earnings EPS. professional, proceeds increased for reported decreased reported $X.X and to loan by EPS processing, $X.XX EPS over in same increased

reported the interest from loan the million $XXX,XXX. improvement by linked $X.X of net million current was million increase was of income in by of balances. from increase the prior quarter was resulted $XX.X $XX.X of higher loan primarily interest interest an Our increased This The of that prior offset million $X.X combination income quarter. million. and of $XX.X income an income of was yields partially driven Non-interest decreased from quarter quarter the investment

of the prior the in million $X.X income million non-interest quarter Prior non-interest $X.X annual generated. the portfolio, included merchant prior being longer The million income Excluding sale outsourcing, basis. about an revenues, on million in but decreased to expense $XX processing are activities by merchant non-interest quarter. our Services and Card Merchant no $X.X from generated gain million in on $X.X

received we and revenue of as services-related associated $XXX,XXX quarter, For the card our virtually roughly of of we million, new launched our merchant this all pretax expense. contribution program eliminated $X

contribution the prior new forward, first $X.X expect of million, about decline a million Reported non-interest million platform. as expense for quarter. capacity $X to generate year a a from we of the Going the It's of during we quarter. was pretax current the $XX.X ramp up

removing pay agreements from included and B&O $X.X loss million quarter. current the plan levels as increases compensation and share an well and increased the returned were which as $X.X benefits with linked were and now and expense as was extra effect quarter's removing acquisition-related and there early million $XXX,XXX, non-interest notable we higher the have taxes rate the is to merchant increase a remaining the prior discussed $X.X from FDIC normal our the of B&O million this Using of expense linked-quarter same quarter compared was within the basis, resulting well the prior This as After prior ratio unchanged up on When effects that loss range $XX.X for prior OREO as ratio the remain reflected termination prior in resulting the third the of zero. at respectively. However, is incentive $XXX,XXX. to termination quarter, expense Compensation in to calls. cycle expense, that to of share the refund earnings in our a the continues taxes, run expenses due the quarter charge activities expense quarter million. processing X.XX%. FDIC on a $XXX,XXX quarter,

purposes, still ratio such, for range modeling the in expense As we reasonable. is believe, mid-X.X% an

to remain on quarter, opportunities, you continue are are an for to this There Bankers the volumes but of $X.X sourcing in level remained deposits pipeline during XX% Total holding last basis they origination this increase for tax our new loan increased production cost a integrate ratio of when the next billion, quarterly deposits steady, portfolio at we quarter, of variable. and $X the end average begin X.X% billion We new adjusted million, roughly while to million the $XXX LIBOR-based X.XX%. was The Core time quarter. year. as increased Continental. fairly active compared higher-than-normal this prime fixed, second of will were update the from unchanged at of rate lower quarter X.XX%, Pacific to X% as XX% target production quarter. to exceeding deposits X XX% rate and The XX% or $XXX LIBOR-based, coupon points.

paying the of agricultural we move lines. their began winter lower months seasonally anticipate utilization, we addition, as and our borrowers line toward operating down levels In

turn I'll review to Now loan credit performance. over the and to Andy activity our call

Andrew McDonald

Thanks, Clint.

loans increased third noted during quarter. earlier, X.X% note. As or $XX million the Items of

third And last during utilization $XX the quarter. combined, XX.X% the as to quarter the First, versus quarter in to declined pay-off activity the second was higher XX.X% compared line prepayment and modestly quarter. million

XX% for for construction million. terms portfolios. total $X remained The roughly the third million. new commercial was was new new in $XXX production loans accounted million under while million. lines of $X was about was $X range over predominantly the centered and size. And the $X $XX New million production of XX% XX% granular C&I million. estate in quarter production, Term production of new real and represented mix loan of to in of the

the was in or and new in about geography, $XX Washington, of in XX% ended quarter, up million of XX% and X.X%. the at billion, In Idaho production loans quarter from terms XX% elsewhere. previous C&I generated Oregon $X.X

nature services third dental million. which and ag, and forestry million, representing up to the book also and quarter, loan and previous previous net excuse were -- quarter new slightly which production were quarter seasonal than transportation additional me, were -- of $XX growth fish, advances portfolio. The net the advances, in and expand Industry the the production saw highest growth previous an Then $XX prepayments grew include the lower segments net in lower New the well. we higher. again, was professional as in the continued with and in

to at home quarters. Our by seasonal construction construction $XX loans part of $X.X quarter. quarter, care had was Growth up approximately prior $XX quarter finance retail, multifamily we've reflected the million. mortgage the $XXX now ended activity ended company billion, quarter estate in portfolio from projects, on around at the contracted health driven during real million Commercial sales warehouse sector. in the the million which several principally growth the in warehouses and up million, and existing of $XX roughly and the loans draws for books was under the our as centered And country. Commercial nature

$XXX,XXX $XXX,XXX for as activities. $XXX,XXX had the discounted was allowance originating the stable a the a to release a of all compared of charge-off $X.X of the portfolio impaired in credit provision a portfolio. and recovery our of for On low loan credit provision extremely million quarter. with for credit release for partially the net along for allowed side, losses company This portfolios $XXX,XXX of portfolio. the the in by metrics releases, lease of This included the prior the the provision purchase provision offset Relatively

slightly As December our last and as to XXXX. was X.X% September X.XX% of lower as X.XX% total loans quarter of at allowance XXXX, XX, XX, compared to

$X.X and was there. quarter, a real Consumer increase the about $X.X For increase estate million, commercial assets was centered portfolio $X of portfolio nonperforming And the million increased about million. in

only to As Past levels X our basis stable In points, And total as unchanged. in NPAs of summary, last were I up points. a annualized low points points quarter. around XX the at basis XX assets result, was net from to quarter. for quarter. be continue nonperforming came a increased mentioned essentially basis to assets charge-offs basis extremely before, XX dues

So now back the nicely. continued will I turn the to call portfolio to perform Hadley.

Hadley Robbins

Andy. Thanks,

XX faster continue the than economy. the grow believe to Northwest next national the will we For months,

the labor hire. likely is wages Case-Shiller are Farmers Northwest experienced pull metropolitan the conditions composite about in region's in supply housing slightly, the current markets. particular, highest is wage the and This on labor contractors, their and growth limited progressively found as XX a navigate pronounced were However, major cities especially was availability the costs. future. to There follow. paying typically pressure among more in remain labor Business for business to to tighter year-over-year have quarter housing Portland home workers prices, find due high they difficult index. tightening. the increase to and and tightens, ability higher in about rates part, supplies, Seattle many cautiously back Upward supply we in third the the positive and owners surveyed during it optimistic workers reported

Some becoming plans. on to taking fund willing additional debt resources consider to owners committing or are more expansion

to for XX. stock as look quarter on tax common closing, XX afternoon. October dividend changes, more a policy based especially share of this quarterly October for business Trump certainty will X.XX% of comments dividend However, to per on record we price the close of our constitutes administration shareholders XX. regarding be prepared closing XX% a the the $X.XX In November of on This dividend paid of of of payout reform. ratio yield and This our our concludes on continue

the reminder, Paige Andy As questions. me and your with now, open to call for And a answer questions. Clint are will

Operator

Instructions] have do the phone? any questions we Joan, [Operator on

Operator

Paige. Yes,

Go We have [D.A. a Jeff ahead question your of line coming with the Rulis from Davidson] question.

now You line open. is

Jeff Rulis

Thank you. afternoon. Good

Hadley Robbins

Hey, Jeff.

Jeff Rulis

quarter? the guess, impressive comments versus deposit I search on deposits what the The pretty any led growth, comment the in quarter, the and to in on

Clint Stein

We in our a at this point, surge year. typically have

related years, it that see customers. development the If to bringing business last you over new And the quarter. on couple in C&I a continuation, go I also and of third our of it's think, you'll It's of that back the builds trend.

X for the combination of most it. things So those of account I think

Jeff Rulis

if there's the And guess, comments environment the not the in seeing on any then costs, of change pricing I as you're lack pressure? just given seems funding - much

Clint Stein

in At we're will The changes. time, this we're offer pressure, carefully seeing not point and changes deposit market although, pricing watching.

strategy a it's it prepared it when with So we all that and know to we're expected occurs. address

Jeff Rulis

provision. the on Andy for one And

got makeup. you've broad a going expect any $X kind - I you'd - there's on comments forward? million almost pieces But and that know Just what of there's different swing to sequentially

Andrew McDonald

I that well. the forward. the pretty sustainable quarter, provision characterize Yes, quarter for would would us think stars third going be not this that I aligned as something

Jeff Rulis

So half first reverting to, levels? of perhaps, year

Andrew McDonald

think would a better that metric be I use, yes. to

Jeff Rulis

on being what I you Continental -- or Okay. the or the the somewhat of is you, on guess, say that - through you'd employing delayed. of impact just Anything that impacts there? last integration Continental [indiscernible] Pacific one maybe And terms that Pacific in the how Thanks. integration even comment material any if anticipate substantially

Clint Stein

had job our But the of Well, a been -- I involved is think delay the as conversion the move have think for lengthened both the all adjusting as a and point wants that's Pacific a has in and everyone. think got forward teams it to I for create team wonderful transition we've we frustration, done a very And I the time Continental. that in on certainly close of to to that way a side well subsequent smooth and engaged frame.

actually relative not been to there's of a model continue that to plan impacts if it. any expect about unfold your unfold, model I feel to we as that we to the we or I think pretty result it But we it. have. as So merger don't the know Jeff, good on

Hadley Robbins

late I going first is now the in mid-March. point of next just I'll for quarter, have it's we The the think close the that add biggest I a conversion the We is know scheduled week. believe, dates. we're to certainty

have And And so lives. that their certainty around the were realization with impact that And model, we're didn't people realization start a the the the we with the numbers. we had mid-XXXX there, on With can think will everything Continental Pacific I of planning targeting who to that I help timing timing. about in cost our it's employees respect merger XX% believe, were have expecting in saves. of XXXX still we comfortable have close, the when just to

fourth going million the in in We'll the modeled. XX% those Now to here cost realize closing of realize quarter, that we'll roughly XX% about or in XX% $XX about And we're that we're the XXXX. XXX% of we saves XXXX. then get

So earnings the it doesn't expected or timing change that. doesn't really -- accretion our like anything

to and and of next that. about work closing we're two just So together. towards still to these feeling And looking pretty good path forward bringing it week starting the things

Jeff Rulis

you. Thank Great.

Hadley Robbins

Jeff. Thanks,

Operator

comes question Arfstrom line next Jon Markets] with from your Your Capital [RBC the ahead of Go question.

Your line is now open.

Jon Arfstrom

Hey, thank you. Good afternoon, guys.

Hadley Robbins

afternoon. Good

Jon Arfstrom

quarter. Nice

confirm to want that. Just

XXXX feel So for accretion you the good are They're targets. still and X% good. XXXX for XX%

Hadley Robbins

Yes, I think so.

from think just to do actually extra were if - I of expected I X think bit I weeks than when we it's what timing maybe that guess, that an conversion it. little of it. close we'll the X, about had that when modeling a we

it the core over. cost feels But still X to get of we're converted lot So those we from of accretion the model. once standpoint, occur still there's the towards X weeks of saves tracking a systems realizing delay because like,

Jon Arfstrom

I Bigger Great. outlook. pipelines still okay. little being about on loan the you've solid. but know picture bit, Okay, a talked down growth

what and If happens of the you the typically in rest pipeline? there? what ag guys Is would it say you set holding aside seasonally, about

Hadley Robbins

during they the I quarterly look of third pipeline second it's margin. were in - last it production wide we during in at year is was When quarter think a production for by exceptionally that holding strong mid-part of XXXX. The the our - at and the point year, there. record

diversification, as plus We to we're I think rate, stuff but saw it's to much at seeing I loans the some capacity it less we're lower ago. while we our sticking want, a existing we normalized. also where still we disciplines change. could X. some other our we of were is And is But normalization relationships. $XX LIBOR pricing occurs. It's seen It's around that care irrational year grow areas have is that million just a in think enough but So is at than faster we've as - places, - some take retaining than what

away terms and we and has of impact hard to that's also we'll that So walk from is it those production by loan prepayments, skewed an forecast. Bottom on the are what growth line, in side. things get

Jon Arfstrom

Yes.

actually last Okay. you. is for Andy, question. my This

and And elevated? of at prepayments elevated a elevated? they but mentioned Were would You you it all you a quarter? of couple maybe little they're times. mentioned You a Is had production it quarter, say typical this times. couple a good

Andrew McDonald

current higher. the $XXX around million bit was about had million it quarter. in $XXX in $XXX came a in it second quarter. in little million, Well, prepayment We And activity the

million a of when you bit in company at time on XX%. not difference. September, the And total then we So activity And to now that's Home get XX% anywhere portfolio. I activity they're little mean, finance $XX down a looking huge growth the also by influential you're have numbers. from peaked that sales But is seasonal to also June. the

this about year - the year, down they're XX%. Given

date versus standpoint, million which an from terms focal June $XX the that So in additional we're impact at that is of contraction in had what here a portfolio. looking also September,

Jon Arfstrom

Okay. with That merger helps. good And close. the luck

Andrew McDonald

Jon. Thanks,

Operator

question. Go question from next comes with Jackie your of Bohlen line [KBW] Your the ahead

is line open. now Your

Jackie Bohlen

Hi. everyone. Good afternoon,

Hadley Robbins

Hello.

Jackie Bohlen

Andy, some you -- in commodity last with quarters now? to coverage you call that an lot what update of about great on you seeing thinking provide regards pricings a that were of on within you're the and portfolio. how gave just Can right

Andrew McDonald

for part, the things, stabilizing most seeing improving. actually We're to Yes.

in talked and a pretty actually of potatoes which cattle, about, hold one I well. was We've seen the onion. for areas So rebound again, continues there to

quarter. recall, you real the issue was have potatoes If we that last

think there. of -- the cherries from results fruit be good pretty and okay we that blueberries. is apples perspective So terms we're and still The seeing will in some okay

say, have this I optimistic. is what these be to remember, next X cautiously which months. that have - now harvested, and But over a sold the - So been we really, lot of will is or some cautiously, you products, remain

we commodity other those prices ag and so impact markets into -- And what impact really the juncture, then the can how -- what But on book. harvest, of don't as come overall this we're in optimistic terms know of consumption. at that

Jackie Bohlen

play optimism quarter's any provision did that into rebound And and expense? of Okay. the

Andrew McDonald

of We collateral did. credits. reverse ag $X able by to It on additional million obtaining about were impairments

Jackie Bohlen

Okay.

So the they -- meaningful quarter's had a on impact it provisioning?

Andrew McDonald

$X to other the that any and million reversal able have to the fund the help arise portfolio. with example, weakness loan Because of impairment, that, growth elsewhere the were we for Correct. may use in

Jackie Bohlen

just very That's do then your the on a just continue much done Recently, really left net of charge-offs low. have tracking is helpful. phenomenon that And Okay. of recoveries recoveries gross think lastly if that that and net in still a lot -- alongside keeping charge-off How forward? going credit. charge-offs that nice have job you will

Andrew McDonald

legacy from The that been recoveries not enjoying have credits. recession we are

activities years. So they're X are they in -- that charge-off's last and the occurred

annualized I been points So basis we've Hard for you But while. it's phenomenal. can been to XX X a that. now under sustain imagine range point basis mean, on if that basis. an

bit I to a think run. it has

assets some prior So real several seen over remain anticipate we've to consistent surprise. the I activity what would the quarters. with

Jackie Bohlen

you great. much. very Okay, Thank

Hadley Robbins

you, Jackie. Thank

Operator

of your Go comes [Piper Your the ahead Clark from next question. question Jaffray] Matthew line with

open. now is line Your

Matthew Clark

good Hey, afternoon.

Hadley Robbins

Hi, Matt.

Matthew Clark

the talked quarter. about the quarter, On in growth loan third down, utilization being C&I is which unusual you the in

just in double-digit and annualized growth maybe shouldn't second, be any about you able quarter. year, seasonally restore thinking to of curious -- third of quarter believe this kind at reason type anything kind supposed there's next unusual that there As numbers drill you down, why be As is activity, I'm if that's look the stronger? to to

Andrew McDonald

be growth. echo remain could comment, we we is to if the Andy. aggressive credit we this want enjoy Matt, Clint's to I on loan more disciplined. But trying guess, stronger mean, are side, to I

most are We recovery an It's the the this in C&I space in probably aggressive point Underwriting seen, course. we've cycle. cycle. interesting at run certainly, is the some that during its of

and we getting if be I'm not healthy. at healthy we that we growing are think double what digits. sure it loans it's I that were want, So would

Matthew Clark

you say piece So utilization there? it, about what I guess, of thinking can happened the

Andrew McDonald

remarks what utilization really in that That provided in occurred I sales - commitments County a think but when commitments C&I category saying, we in what company of are King the finance were that I be the do footprint. has the labor record down. especially tends quarter, owners to think optimistic, the was somewhat really was with second came to broad And portfolio Hadley you to not business Those the problem back look market. fuel increased throughout reduced. also to across in our some the

So being is constrained. growth

the growth. by as so sheet balance to being opposed cash debt And reducing flow reinvested is expanding

Matthew Clark

then Nice maybe margin. Clint the for And lift this Okay. core on quarter.

core given with you're then fairly Sounds margin. the little it? And to hike, prime higher can like your to portfolio there, follow more latest margin a production here with you in the get Is tied sense about quarter any little thinking are the then continue think neutral, PCBK, to relative bit but coupons too, and way that the through variable of I more just 'XX. and December the maybe LIBOR being and to -- above, drift it's not that comments

Clint Stein

that by resiliency me all lift have the floors been last that loans about quarter seeing and supported still to margin their optimistic continue of the factors had think off the exceed mentioned are present. coupon the the the margin off We're I to the left that their we rate. floors. production that continues million last new $XXX under And just lifted portfolio floors. the quarter, This on of average I that loans

probably had that, last basis think, so quarter I funds. higher margin us things overnight this cost balances the in of on or a point we the One was

the where we've the impact that month for of see through. quarter. really of It's bit quarter. as We first quarter a X, will rate in come our target the funds. help a that give to for seen which expected tailwind will overnight that return rate us in have long-term hikes come hike, we quarter the December near will is fourth certainly the the And year, following little managing last next margin where our that those year

advantage we to some that margin take increasing have we'll mix, the about end positioned the in billion $X.X will think quarter, when rate of impact. the Continental, dramatic So on. loans be continues to an to shift I bring It's the obviously cycle. asset that, get Pacific an of absent of

guess, play if talk existing portfolio, all changes can our into optimism about it the the the I that -- margin will we next So that that through how my of impacts for repricing quarter.

Matthew Clark

Okay. that Card expense on I as Services you make growing sure And $XXX,XXX, the quarter, in the And growing what embedded that rate? that revenue then you Merchant the But was to related from expense think there. had mentioned obviously well. want non-interest just run in -- we're the

Clint Stein

our So program, in-house the revenue. $XXX,XXX I new under with as I had and the of really under we know. we department. a functioning stated, fully model card don't had, There isn't mentioned you old

FTEs manager or essentially, the to FTE associated employee, non-interest revenues expense was that, The program, one with the one were about have there think XX our endeavour. we committed is new generating XX relationship million. that to net With I annual $X.X vendor. this

the relative million the modest And that we've in last XXXX. so pretty that is cost over to say, year $X.X had,

terms million. the been around with annual has this basis, net be an think annual million to that has of platform. initially new this been from about contribution going So trending, $X contribution $X on we're We in

Matthew Clark

it. Got

thank you. Okay,

Operator

at Please There from are the no continue. time. further lines this phone questions

Operator

questions, web no Looks like there's either.

it So guys if wrap want you up. to

Clint Stein

conclude Thank everyone. Okay. the call. you, We'll

Hadley Robbins

you. Thank

Operator

informative. presentation our concludes webcast. today. this This to for hope Thanks participants joining our found We webcast you us

disconnect. a now great may day. Have You

Columbia Banking System (COLB) 26 Oct 172017 Q3 Earnings call transcript