Columbia Banking System, Inc. Stock

Appreciate it. Columbia Banking is a regional bank operating across large, attractive Western markets with a strategy focused on deepening its Northwest presence, strengthening its competitive position in California and expanding across other Western markets. Its commercial banking model supports a granular low-cost deposit franchise with total deposit costs of just 1.29% last quarter. The company has also continued to expand through M&A including last year's acquisition of Pacific Premier.

Joining us today is Clint Stein, Chairman, President and CEO of Columbia Banking System. Clint has been with Columbia since 2005, serving in several key leadership roles before becoming CEO in 2020 and helping guide the company through multiple transformational mergers. To his left is Tory Nixon, President of Columbia Bank since March of 2023. And then earlier this week, those that saw an 8-K may have noticed that he is transitioning to a senior adviser role later next year. And then far right there is Ivan Seda, who is the Chief Financial Officer, a role he's held since late 2025.

So typical as the other presentations, I'll kick off the Q&A and then open it up to the floor. First one, if we go back 5 years, Columbia was embarking on a significant transformation. Today, after 2 major acquisitions and several years of integration and optimization work, how would you describe that the franchise Columbia has today?

Well, thanks for having us, and thank you for sticking it out here. I think we're the last one of the day. And so we'll try to make it entertaining if we can. I think that our franchise is the crown jewel of the West. And not that there aren't other good banks and good franchises in our markets. But when I look at our market position, I look at between -- especially banks between $50 billion and $100 billion, we stand out. And it's the density that we have up and down the coast from the Canadian border to the Mexican border. It's what we're building and have built over the years in the intermountain states. And we just -- we're just in a sweet spot. As Tory likes to call it, it's kind of the Goldilocks syndrome.

And just sticking with that theme, Columbia is now one of the largest banks in the West. And just beyond higher hold limits, what opportunities does that scale create that would have been more difficult, call it, 5 years ago?

I mean higher hold limits are one thing. It gives us the ability to continue to grow with our customers as they grow. More importantly, it gives our customers the confidence that they can continue to bank with us. They can continue to expand their business, and we're going to be there for them. Obviously, there's the benefits of technology being able to spread that over a larger customer base, our market position when it comes to recruiting talent. So it's -- there's a lot of benefit to what we've created.

Let me add to that. Yes, I would just say the success breeds success and talent likes to follow talent. So I think a big part of it can be the fact that as we've gotten bigger and we have developed more capabilities, we're attracting a kind of a different class of talent in the company, some highly sophisticated, very talented bankers that are coming to us today, which is different than 5, 6, 7 years ago, which is great.

The only other thing I would add is just diversification of the business model. It's very different than it was 5 years ago, kind of prior to the MOE and prior to the PPBI deal. We track a sheet of what we call wins and losses. So anything above $10 million of TCE we look at every single quarter. And the thing that I like to see on it is the diversification, both in terms of the industries that we're supporting, the types of products that we're leveraging and then the geographic diversity is up and down the 8 Western states that we now serve.

Maybe sticking with products, what role do treasury management, payments, wealth management and other fee-based capabilities kind of play in strengthening that consumer relationship and kind of driving long-term value and growth?

Yes. Maybe I'll take that one. If you think about the business, a loan, sometimes it's an entree into the customer, the customer into the bank, but a loan can be more and more commoditized. It can be very transactional. It's the fee-based products, the treasury management, the commercial card, merchant services, international banking. All of those things are the true, I think, foundation of a really good core relationship with a customer. That's kind of where you make a transition from being a lender to an actual participant and an adviser for a company. And -- and that's incredibly important for us as a company as we deepen the existing relationships.

And then as we bring new relationships into the bank, it is a full service how do we lend you money if you need it, but then how do we do all these other things that are part of your working capital that give us this true core relationship with our customers. And it's pretty powerful.

And maybe, Ivan, could just add from a financial perspective, how do you finance that growth? And what are some of the products that can really drive ROE improvement?

Yes. In general, Tory and I were having a conversation yesterday. From a commercial perspective and a business perspective, there's really no product gap that we have that we need to go out and acquire or fill or build in regard to that. There are some things that we're doing on the consumer side to make it a little bit easier to come on board with Columbia. And so we'll be rolling some of that out in the first half of next year.

In terms of how we finance that, right? We're a very disciplined company overall in terms of expense management. We had an opportunity with PPBI coming on board this year to really think about operating leverage in a very powerful way, right? We closed the PPBI deal last fall, and it was a unique opportunity where given the treasure trove of capital that they had within the bank, our capital ratio has actually increased. So you had a situation where capital ratios are coming up. It allowed us to be a more profitable institution in general. And then we had the cost synergies, which were going out of the company over the first half of this year. So we had revenues going up, expenses coming down and that's been a fantastic part of the engine this year to drive that profitability profile that we have.

And maybe just sticking with the kind of the strategy side. You often describe yourself as relationship banking as the core differentiator, which a lot of banks, to be clear, kind of use that. How important is that to you? How do you execute on that? And how does that support growth?

I mean that's how we differentiate ourselves. And we've been relationship oriented for the entire 33-year history of our company. Tory mentioned being an adviser to our clients. And we think about that trusted adviser and you can't earn that without building those relationships. And so we think with our business customers, they have their advisory network, their attorneys, their accountants. We fit into that as their banker.

I actually offended somebody a few weeks ago. I was at a lunch and I was explaining how we differentiate ourself in that trusted advisory capacity, and he's in the insurance industry, and he says, everybody always forgets about the insurance broker. So if there's anybody that thinks that the insurance is there, I think it's a necessary evil. But for those insurance brokers, they're part of that as well.

Great. Shifting over to just a question on deposits. As customers have more -- become more rate-conscious, face fewer barriers to moving funds around, how are you winning deposit relationships today?

Again, our value proposition has never been rate. We don't compete on rate. I mean it's important. You have to be in the ballpark on that. But if you -- going back to my previous comment, if you're part of that trusted advisory network, you can be a little lower on deposit pricing, you can be a little higher on loan pricing. And I think that's where, in particular, a lot of the smaller banks get it wrong is they don't fully understand their value proposition. They start to compete on rate. And once you do that, you've already lost. I don't know, Tory, if you want to add?

Yes, we look at pricing in a very holistic way, so full relationship pricing, and it's a combination of -- on the loan side and the deposit side and the fee income part of the business and look at it that way as that's how we price and we can -- there's a bunch of different levers to pull. I think that's one way, to Clint's point, you get somebody in the company and you have them as part of your customer base, you have multiple products and services that you're negotiating all the time on price, deposits seem to be one piece of it. It becomes less sensitive when you have a bunch of other things that you're working on with them versus just having -- focusing on just deposit pricing. And I think we've done a really good job looking at a holistic view of the value we bring and the value that we want from a customer.

We'll touch on AI later, but AI agents, what is the risk to COLB in the banking industry in terms of moving low-cost funds into higher-yielding products?

So on Monday, I was at a function that we hosted for some of our family-owned businesses, and I asked them the question about did they ever see a day where they would trust AI to move their money around either personally or with their business. And without exception, they were absolutely not. I think it's a real thing. We joke around kind of half joking for those of you that are familiar with us and know our Chief Strategy Officer, Aaron Deer. Aaron will be the one on our team -- he is probably working on building an agent right now to move his money around between his 27 bank accounts to get that extra 3 basis points. He claims it's for R&D purposes to see what other people are doing...

Everyone has hobbies.

Yes. But in all seriousness, I don't want to diminish the potential for that. But I think that we're better situated than most because we're a main street commercial-first bank. And while we have roughly 40% of our deposits are consumer oriented, I don't think that our customer base is going to be a fast adopter of using AI to manage their money flows. But like everything else, same thing with stablecoin and tokenized deposits. We don't see a demand or a need from our customers. That doesn't mean that we're not studying it, that we're not staying abreast of the developments there so that if it does become something that's important that we're able to capitalize on that.

Yes. My personal view, just to add on top of that, is that if there is a risk of that in the industry, it's going to be in the more rate-sensitive and digitally native deposit bases, which really, as you get to know our company is not how you would describe our deposit base. I would describe ours as, again, diverse geographically, diverse between consumers, small businesses and commercial and tends to be much more of a main street style banking model. So that's my personal view.

And when you're traveling across your footprint, meeting with customers, what are you hearing from business leaders?

A lot of optimism. I'll say, cautiously optimistic. There's a lot of volatility. But for the last 6, 7 years, there's been one thing after another that they've had to navigate. We strive to bank the best operators in any industry that we're in. And the good operators tend to find a way to navigate through uncertainty and actually benefit from it. So I mean that's, I guess, that cautiously optimistic is how I would characterize it broadly.

Tory, you spend as much time on the road as I do. I don't know if you have anything else to add?

Not much, but we do a survey every year, a business barometer, about 1,200 small, medium and probably up to $0.5 billion in revenue businesses across the country. And there's 60 questions. We get the results back in April. And it's very -- surprisingly optimistic from that group. And I've had a follow-up with a few people involved in it. And to your point on the advisory group, the optimism has waned a bit over the last several months. I think because of a lot of things -- obviously, things going on in the macroeconomic world. But still optimistic, still surprisingly so.

You got a lot of customers who have pent-up demand to do something. They want to make an investment. They've been on the sidelines for a bit. They're like ready to go. At some point, I think that kind of can be unleashed. But I think, to your point, they're still cautiously kind of sitting on the sidelines and optimistic that they'll get that chance in the near future.

And then maybe sticking with you, Tory, you mentioned talent. What are you doing to retain, develop and add talent in bankers?

I mean it's a full-time all out assault. I mean it starts with the story of the bank. I mean we -- we tell the story of being a large enough company to matter where we have the capabilities, we have a balance sheet, and we have the services to kind of compete with anybody, but we combine that with a community bank service model. So we kind of look at it as we're big enough to matter, small enough to care kind of mentality.

And when you tell that story to bankers in all of our markets, it's a very attractive story. Nothing against big money center banks, but sometimes you can't -- you work for a place like that, you don't move the needle much. At Columbia Bank, you can move the needle, and you can be very powerful part of the success of the company. That's attractive to a lot of people. So part of it is just is that itself. I said earlier, talent attracts talent when you've got talent in the company and they see the people that we have, and they're like, I want to be a part of that team. And at the end of the day, the team with the best people usually wins most of the time. So that's kind of the mentality around it.

Obviously, years of significant interest rate volatility. How do you approach balance sheet positioning and franchise optimization? How has that evolved?

So I'll jump in on that one. So from a balance sheet perspective, what we strive for is neutrality, right? I think it's anyone's guess what's going to happen in terms of interest rates. I think if you go back 12 months ago, everyone who is probably sitting in the room here, expecting a rate cut in December and probably 2 more over the course of 2026. And here we stand with the rate increase last -- I guess, 2 months ago now and potentially another one coming in December.

So if you look at the ALM posture that we have, it's generally around neutrality, right? And I think we do a good job of managing to that within a reasonable range in a first year effect. We are going through a balance sheet transformation. And so I'll take it back to about a year ago as we put PPBI into the company. We had about $8 billion of our $48 billion loan portfolio, that's transactional in nature.

And this really came from, think of legacy multifamily, legacy mortgage assets, long duration, low yield, about $8 billion that was yielding just north of 4% coupon. And so we've been evaluating that and working that off over the course of the last year. There's no credit concerns. It's not a good bank, bad bank type concept. It's just that we've got about $600 million of our capital base stuck within loans where there's no other relationship with those borrowers outside of the credit itself. It's just not part of our business model going forward.

So as that's been coming down off the balance sheet to the tune of about $250 million per quarter, we're replacing that with core relationship lending. It's about a 200 basis point yield pickup comes with the deposits, the core fee income, what Tory talked about earlier, merchant, card, all the different services that we want to wrap around our clients in regard to that. And so that's really allowed us to continue to move the needle from a net interest margin perspective. We have added approximately 25 basis points to our NIM. So we're operating just north of 4% today. And we expect that story to continue as we go into 2027.

On the flip side, we talked about deposits earlier. I think everything has to come in tandem. And so from a deposit perspective, low to mid-single-digit core deposit growth has allowed us to continue to optimize the funding stack as well. We still have about $5 billion of what I consider wholesale funding costs that are higher. And so we look to continue to whittle away at that over the course of several years.

And then finally, the third part of our balance sheet that's moving has been around capital -- strong capital position. We go through a capital stress test every single quarter as part of our processes. And so that's allowed us to unlock the share repurchase program that we announced a year ago, just completed our first year of that and announced a few weeks ago as part of our earnings call that we'll be continuing that story going into Q4 and 2027.

Maybe one more for me, and then I'll open it up. The margin -- net interest margin in Q3 exceeded expectations. Was that a function of you being conservative as you thought about the quarter? Or was there some positive underlying trends that drove that outperformance? And continue that theme as you think about your comments on fourth quarter and first quarter, do you feel like you're being conservative there as well?

It's a great question. So there were a couple of different things that factored into it. So the printed number is 4.11% margin in Q3. Included within that, we will disclose if there's a discount recognition on a loan that pays off early. We had 2 loans that paid off, which contributed about 3 basis points of that. And I see that as kind of a short-term pop in the net interest margin for Q3 that we don't expect to repeat in Q4.

The core of it was just the strength of the funding stack. And so we put up a quarter where we had $1.2 billion of core client deposits. We outperformed what we had expected in terms of maintenance of the deposit costs. So we actually had deposit cost decrease over the course of Q3, which I think was very strong and positive in regard to that. As we go into Q4, one of the factors that we talked about during our earnings call is we've got a little bit of excess debt on our balance sheet over the course of the quarter. And what we're doing there is, we raised about -- well, exactly $250 million of 10 non-call 5 sub debt in September, mid-September of last quarter. The purpose of that is not to bolster our capital ratios. It's basically a refinancing of our Tier 2 capital.

So we have, I want to say, 23 tranches of trust preferred securities, of which about 17 of them we're going to work through and redeem over the course of this quarter. And so what that does is we'll have a slightly higher costs associated with our term debt over the course of Q4, and that will contribute about 3 or 4 basis points of pressure.

So the way I would describe it is I think it's going to take a breather kind of where it's at, steady state within a few basis point range of that adjusted Q3 NIM. And then as we get into next year, we do expect to continue to see that NIM story continue as we optimize the balance sheet, like I talked about earlier.

Perfect. See if there's any questions in the audience?

[indiscernible] So I was just wondering, how do you [indiscernible] your gaining market share as the big guys, Bank of America [indiscernible]. And you mentioned you're big enough to matter and small enough to care. Can you give us some more stories about how you beat them in the market share gain?

The question is, do you know how to pronounce [indiscernible], that's where it gets a little bit more difficult.

Yes, very difficult.

So I'll start and then Tory and Ivan can jump in. Columbia Bank was founded 33 -- a little over 33 years ago, and it was after KeyBank acquired Puget Sound National Bank. And the reason I'm kind of going back to that point in time is that's where the CEO -- former CEO of Puget Sound National Bank partnered with somebody else and did an IPO and started Columbia Banking System because he wasn't ready to be done and his bank got sold out from under him.

Our market share is just about double KeyBank's in the Northwest. So I think that's kind of an important thing over the last 30 years that they started with something, right? They started with in the Northwest of Puget Sound National Bank franchise. We started from -- they put a couple of bank charters together, a couple of hundred million in assets, to the point where now we're fifth. We have Wells sits a little bit ahead of us. Chase sits a little bit ahead of us. U.S. and then BofA. We take -- and that's in deposit market share. That's the easiest thing that we can track.

The other thing is as we look at where we're attracting talent from. We're attracting talent from all of those banks. We look at customers. I had -- I was in Oregon on Monday, and I had breakfast with somebody that's part of a Fortune 500 company. And he said, all of their deposits in Oregon are at Wells Fargo, and they're getting terrible service. All of their deposits in Washington are at U.S. Bank and they're getting terrible service. And it's about $300 million of deposits. He goes, we're bringing them all to Columbia.

So it's back to that place where we're at. And I'm not trying to -- I don't want to be too critical of our competitors and the larger banks, but it's a matter of what Tory said where we're big enough that we can handle all of their needs, but we're small enough that they still matter to us and small enough to care and they get that access.

Jamie Dimon is not going to go out and meet with the 45 customers I've met with in the last week. So that's how we differentiate ourselves is we know where we can win, and we're very targeted in competing where we can win, and we're pretty successful at it.

Yes. I'll give you 1 example. I mean this kind of stuff happens frequently in the company, but I'll give you an example in Arizona a couple of years ago in Phoenix. We had a new team there, I, kind of, grown the bank there. There was a family -- basically a family-owned company that was -- have been a customer of BofA's for quite a long period of time, and they tripped a covenant. They had a rough year, tripped the covenant. The response from the bank was like no one is talking to us, no one -- they kind of don't want us. They don't feel like we're wanted in the company anymore.

And so we sat down with them on a couple of occasions, talked about where they had been previously, what their forecast was, where they were taking the company, the shifts and the changes they were making. We felt comfortable enough that we would provide a $50 million or $60 million credit facility to them, took them from the bank, brought them into Columbia Bank, all the deposits, all the -- every part of the relationship. And it was because we sat down and spent enough time to kind of go through it and understand, why did you have a little bit of a struggle, and what are you doing about it?

Going back to your comment around by trying to bank the best operators possible. People that have been doing their business for a long period of time, they can -- they figure out. The good ones figure out how to get through a struggle and come out the other end. It's one example. Since then, they've turned the company around completely. They paid off the credit facility, which I guess I'm happy that they pay us back, but also disappointed that they pay us back kind of thing. But it's a forward strong relationship. And that's just one example of, I think, what happens a lot throughout our company in different footprint -- different parts of the footprint.

Any other questions?

Janet Lee from TD Cowen. If you look at -- given the strength or the good performance on the deposit front and you're obviously optimizing the balance sheet improving profitability. If I look at your prior cycle, I think your beta on the deposit was in the mid-50s. You're guiding to about 50%. I feel like there could -- it seems pretty conservative given that you're not rapidly growing your balance sheet. Is there some sort of conservatism baked into the 50% beta on your deposits?

It's a fair question. So a couple of things. When you go back to the prior year, we've done a couple of different things that I think have allowed us to outperform that. One is, if you go back a year ago, we had several billion dollars of brokered CDs within the deposit portfolio as well. And we've really remixed that entirely off the balance sheet. And so that goes into the equation.

We've also had about $450 million of the PPBI deposit portfolio that was single service, higher cost retail CDs that didn't fit the bill in terms of how we operate our business going forward. And so that's also come off. So there's been a few things within there that's allowed us to outperform that.

I still think 50% is a good expectation on a through-the-cycle basis. But as I look at Q4, I do think there is potential opportunity to outperform that just in what we're seeing in terms of initial discussions from a client perspective. But overall, through the cycle, I still expect something in the 50% ballpark to be reasonable.

Can I ask about the commercial real estate portfolio. So [indiscernible], it's like 40% of your loans, excluding the occupied. So I'm curious like where -- which bits that you had expected to be relatively more stressed if 5-year rates went up [indiscernible]? Also curious on the [indiscernible] what the trends are in vacancy, supply across your footprint? And then just finally, how do you expect this [indiscernible] in terms of loans over time. I think it's shrinking. And Fitch actually has even more negative watch [indiscernible] like is that a consideration as well? What do you think is an ideal percentage to you over time?

I can start with a few things, and then you guys can jump in there. From a multifamily perspective, we really are not seeing a whole lot of pressure within that portfolio. I think we were talking about a 6 basis point overall delinquency level within the multifamily portfolio. Debt service coverage is still above 1.5. And so very comfortable from that perspective.

You're absolutely right that over time, the percentage of our balance sheet that is within commercial real estate assets will continue to decline. We have an overall goal of eventually getting to 50% of what we consider to be commercial balances, so C&I as well as owner occupied. We jumped up to -- I'm going to go from memory here. I want to say it was a 315% commercial real estate concentration ratio in Q3 of last year in part because of PPBI coming on board. We're now below 300 and kind of in the 295 type range, and we expect that to continue to drift further south as we go through the remix that we talked about earlier.

Overall, the transformation that we're doing on the loan side of the balance sheet has delevered the balance sheet by about $1 billion. And we expect that the guide for Q4 is flat to slightly down. I would expect that in Q1 and Q2, you'll hear a fairly similar guide for me, although you can wait another 85 days or so for that officially. But there will reach an inflection point where we've kind of seen most of that growth headwind diminish and then we'll start to grow again.

And from a capital allocation perspective, that will make my job a little bit more difficult in terms of balancing between the things we're doing on the share repurchase program versus consuming capital for our client needs. So that's a little bit of how I would think of it at a high level. Would you add?

Let me talk about occupancy and stuff. So most of our multifamily lending is in the Western West Coast. So a lot of it in California. Occupancy is still very high in apartment complexes. The restrictions and the cost to build are significant in that part of the country. You also have a very high single-family home pricing. So the demand for multifamily is still very strong in the West.

The cost of rent has increased over the last several years. And it's kind of -- the one thing that has happened is that, that's kind of stalled out a bit. There's a little more concession that's being given by developers and owners of projects than there was before, but it's very slight. But you have seen kind of a stall in the actual rent that they can charge, but the performance of the loan portfolio is still very pristine.

So I can't help myself. Our Director of Investor Relations, Jacque Bohlen is here. She's going to kill me for this. But you mentioned the Fitch having us on negative watch. I guess we're going to have to start bringing one of those T-shirt canons to these things and shoot T-shirts out to the audience who says, we're not those guys because whenever there's something, whether it's NDFI or anything office -- we all get paint -- yes, software, life sciences, we all get painted with the same brush. And so I think that Fitch's work was a little bit lazy and incomplete, and they painted us with a broad brush. I mean our credit metrics remain some of the best in the industry.

Our underwriting standards, we've not deviated one bit from those. We pass on hundreds of millions of dollars of deal flow every quarter simply because we don't either like the underwriting, the guarantor or somebody else is willing to lend much, much deeper into the collateral. So I'll stop my rant now, but I just -- I couldn't help myself. I gave it 3 minutes to see if I could let it pass, and I couldn't.

The other thing that I think that we talk about with rating agencies as well is around our capital ratios. And when you come out and announce a $700 million share authorization, and we've been very clear that we intended to use that, I think that, that was something that we wanted to make sure was out there with them. As you look back at our capital ratios, we measure twice and cut once. I'm a very conservative person by nature. And so the remit for my treasury team is fortress balance sheet. And included within fortress balance sheet is ensuring capital and liquidity for good times and bad times. So we go through that stress test piece of it.

I think as we go quarter to quarter to quarter, and we continue to execute that, we've got more of a track record in terms of how we will continue to thoughtfully return capital to shareholders, diminish our share count over time, but also manage to -- within a fairly tight band from a regulatory capital ratio perspective. And so I think that that's been part of the conversation that we've had, and we do take their feedback seriously. But that's been the other factor that I suppose I would comment on.

This is an AI question, but from a very different lens. Clint and Tory talked about going from a loan, because it's transactional, and then you move into an adviser relationship, hopefully, and getting to be a trusted adviser. But that wasn't a period of time when AI didn't exist in the customers' hands. And people talk to [indiscernible] nowadays, they're finding more and more that clients are showing up fairly informed in a way that they have never been informed before about legal matters. And it used to be if I was a client and had an attorney, I can go through some searching, but I couldn't connect the dots together. How do you start to deal with a customer who is bringing information to you and remain an adviser if their knowledge base is starting to get more connected and far more sharper. And I guess what are you doing about that?

No, that's -- that's a really, really good question. AI hallucinates still. And so I think it's a matter of they want to inform themselves. But a lot of our customers, they want to spend time on building their business, whatever that business is. If they're running a steel fabrication business, they want to build stuff. And we have that relationship. And so they're not lacking a resource where they have to go out and get it. I'd say differentiating factor between us and, say, an attorney, is we don't bill in 6-minute increments. So our advice to a certain extent is free. It's kind of -- it's included in the package deal of the relationship. But that's a very insightful question and one that I think we'll see as time goes on. But -- but I think there's a little nuanced difference between, say, what somebody might ask us that free advice component versus getting $500 bill from the attorney. I don't know if you feel any differently?

No. I mean I think it's a potential transition evolution of multiple industries, if you will. Banking happens to be one of them. At the end of the day, we have to educate our workforce. They need the knowledge, they need the information. I will still say today, people want to bank with people and relationships are people driven. That adviser role is about having a seat at the table and being a part of a solution that a business needs and wants. And that's what we built this franchise on and feel that it's incredibly powerful. Does that change over time? As you said, I don't know yet, really.

Timur Braziler with UBS. In 3Q, it seemed like the traditional loan book payoff slowed for the first time in a handful of quarters given the backup in rates. I guess what have you seen quarter-to-date? Has that trend continued into the fourth quarter? And then maybe a separate question kind of on a similar topic. Once loan growth does return, what is Columbia's ability to maintain a 4% plus margin in an environment where loans are growing?

Yes, I'll jump in on both of those. The first answer is yes, not in a way that's dramatically different. But the one area that I monitor most closely is the pace of that transactional portfolio run down. For a while, you could almost set it like a metronome, right? I mean it was very consistent in terms of the daily reductions that we would see out of that portfolio. I think what's happened in the bond markets over the last 90 days, you have seen CPRs diminish in regard to that. And so I would expect that we would see a slightly lower level of prepayments overall through the portfolio over the course of Q4.

In terms of the second question, I think the answer generally would be yes, right? I think that -- if you look at our balance sheet and take a step back, we still have, like I mentioned earlier, $7.1 billion worth of transactional loans that are yielding coupons of 4.25%. And we're funding it in part through $5 billion of wholesale financing that's approaching 4%. It's not a good trade. So you've got $600 million of capital locked into those assets. And so as that continues to mature and come off, that is going to continue to be the gift that keeps on giving from a net interest margin perspective.

And so one of the conversations we have pretty consistently is this balance between growth and optimization. And clearly, we've been on the optimization journey for the last year. We expect that to continue. Whether that tide shifts and we reached the low ebb in May or June or July or September of next year is anyone's guess. We have obviously forecast, and we do think that we'll reach kind of a low point at some point in 2027. And then we'll see that continue. But in the meantime, we're going to continue to optimize return capital where available and see that net interest margin continue to expand.

And with that, please join me in thanking Columbia Bank. Thank you.

Hello, and welcome to Columbia Banking System's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] At this time, I would like to introduce Jacque Bohlen, Director of Investor Relations, to begin the conference. You may begin.

Thank you, Towanda. Good afternoon, everyone. Thank you for joining us as we review our third quarter results. The earnings release and corresponding presentation are available on our website at 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 will now hand the call over to Columbia's Chairman, Chief Executive Officer and President, Clint Stein.

Thank you, Jacque, and good afternoon, everyone. Our third quarter results demonstrate steady progress on the same core priorities we have outlined for the past several years delivering consistent, repeatable performance, continuing to reshape the balance sheet to support long-term profitability and returning excess capital to shareholders. This quarter, we continued to grow relationship-based commercial loans and utilized funds from strong customer deposit growth to reduce our reliance on wholesale funding, enabling both sides of the balance sheet to contribute to net interest margin expansion. We also returned over $1 billion to our shareholders over the past year through dividends and share repurchases. The completion of our existing buyback authorization resulted in an 8% reduction in our common share count over the duration of the program. Given our confidence in Columbia's long-term strategy and our outlook for continued excess capital generation, our Board of Directors has authorized a new $1.2 billion share repurchase program.

Our results reflect the benefits of consistent execution even as the operating environment continued to shift. Discipline is not always the easiest path, but it's one our teams have maintained quarter after quarter across loan and deposit pricing, credit and expense management. That sustained consistency has driven improved profitability and a balance sheet increasingly built around full customer relationships.

In August, we marked the 1-year anniversary of closing our acquisition of Pacific Premier, which was the smoothest integration I've experienced in my 21 years with Columbia. Over that time, we have built a compelling footprint across the West, achieving scale and a competitive presence through the combination of organic growth and strategic acquisitions. As I have repeatedly stated over the past 18 months, Pacific Premier was the missing piece to the franchise we envisioned. Our focus remains on fine-tuning our franchise and continued execution on organic growth opportunities. Our Northwest routes support our 10% market share in Washington, Oregon and Idaho, while our growing presence in other key Western markets provides us with significant opportunity to gain share and further enhance our market position.

With the integration fully behind us, we are applying our operational discipline with even greater focus, looking across the company for additional opportunities to improve efficiency and profitability. Together with our continued balance sheet optimization and intentional approach to capital management, this work strengthens our ability to deliver sustainable long-term value for our shareholders. I'll now turn the call over to Ivan.

Thank you, Clint, and good afternoon, everyone. As Clint highlighted, our third quarter results reflect the progress we continue to make on our strategic priorities.

Turning to Slide 11. We reported EPS of $0.78 and operating EPS of $0.82 for the third quarter. On an operating basis, which excludes items detailed in our non-GAAP disclosure, third quarter pre-provision net revenue and operating net income increased 7% and 6%, respectively, compared to the second quarter of 2026 and 25% and 12%, respectively, compared to the third quarter of 2025. A more favorable mix of loans and funding, together with disciplined expense management, drove both the sequential and annual growth. The addition of Pacific Premier also benefited the year-on-year comparison.

Turning to Slide 12. Average earning assets were $59.8 billion during the third quarter as balance sheet optimization and elevated CRE payoffs contributed to modest contraction compared to the prior quarter. We actively managed our funding base using strong customer deposit growth to reduce wholesale funding, including public wholesale balances. Between June 30 and September 30, we reduced wholesale funding by $1.5 billion, contributing favorably to net interest margin.

Slide 13 outlines the contributors to sequential quarter change in net interest margin with NIM at 4.11% for the third quarter. Adjusting for the 3 basis point benefit from accelerated repayments this quarter and the 3 basis point impact of onetime credit-related interest reversals last quarter, our NIM expanded by 12 basis points sequentially. Our balance sheet optimization strategy drove meaningful NIM expansion, building on improvement throughout the past year. As previously articulated, NIM moved above 4% and excluding unusual items, we expect it to remain above 4% for Q4. More specifically, we are guiding to a Q4 NIM of around 4.05%, which incorporates the impact of carrying excess subordinated debt throughout Q4 at a modestly negative carry.

Our latest interest rate modeling continues to show that our balance sheet ratios remain largely neutrally positioned to rates as Slide 14 details, providing earnings insulation whether interest rates rise or fall.

Noninterest income in the third quarter was $80 million on a GAAP basis and $87 million on an operating basis as detailed on Slide 15, at the high end of our guided range. Our results reflect continued momentum across products and businesses, and we expect noninterest revenue to remain in the mid-$80 million range for Q4.

Slide 16 outlines noninterest expense, which was $365 million on an operating basis, consistent with last quarter and reflecting disciplined expense management across our core franchise. Excluding CDI amortization, which will decline slightly each quarter, we expect fourth quarter noninterest expense to be in the $330 million to $335 million range as we continue to reinvest in our franchise.

Moving on to Slide 17. Provision expense was $33 million for the third quarter, reflecting loan portfolio runoff, credit migration trends and changes in the economic forecast used in our credit models. Credit metrics remain stable and healthy.

Slide 18 details our allowance for credit losses by portfolio with coverage of total loans at 1.02% at quarter end and 1.25% when credit discount on acquired loans is included.

Turning to capital. Slide 19 highlights our regulatory ratios at quarter end. Our CET1 ratio declined slightly to 11.5% as our regular dividend and robust buyback activity modestly outpaced strong capital generation and the benefits of balance sheet optimization.

During the third quarter, we repurchased 6.5 million common shares, returning approximately $200 million to our shareholders and completing our prior repurchase plan. Our total risk-based capital ratio increased to 13.8%, reflecting Columbia Bank's issuance of $250 million in aggregate principal amount of subordinated notes during the quarter. We expect to use these proceeds to redeem approximately $240 million in aggregate principal amount of junior subordinated debentures associated with certain trust preferred securities through early 2027, causing our risk -- total risk-based capital ratios to decline by approximately 50 basis points, all else equal. These actions advance our broader strategy to optimize both our balance sheet and our capital structure.

Tangible book value declined during the quarter to $18.10 due primarily to an increase in other comprehensive loss as interest rates moved notably higher during the third quarter. Looking forward, we expect share repurchases to remain in the $150 million to $200 million range for the fourth quarter under the new repurchase plan that Clint outlined. Overall, we're very pleased with the financial results for the quarter, generating an ROAA of 1.4% and an ROTCE of over 17%. Our focus remains on protecting the quality of our earnings as we work to improve returns over time.

With that, I will now hand the call over to Tory.

Thanks, Ivan. Our teams produced another quarter of solid relationship-driven results. Our loan portfolio continues to shift in the direction we want with commercial loans, inclusive of owner-occupied CRE comprising 43% of the total portfolio compared to 42% at June 30 and 39% a year ago. Competitive pricing and structures that we are unwilling to match contributed to a decline in loans to $46.9 billion from $47.2 billion as of June 30, although the pace of decline slowed relative to last quarter. Loan origination volume was $1.2 billion during the third quarter with nearly 70% attributable to commercial loans. Our focus remains on winning full commercial relationships rather than single product transactions. These broader relationships extend naturally into deposit and fee income opportunities, supporting stronger overall profitability.

Turning to deposits. Strong growth in customer balances supported an increase in total deposits to $52.7 billion compared to $52.1 billion at June 30. As we intentionally reduced public wholesale and brokered balances, customer deposits increased by nearly $1.2 billion during the third quarter due to seasonal balance growth and new customer activity. As Clint noted, our discipline extends to deposit pricing. The average cost of interest-bearing deposits declined 1 basis point to 1.95% for the third quarter. Our spot cost of deposits was largely stable at 1.96% as of September 30, reflecting a measured response to the Fed's rate increase in September.

Our relationship approach to banking is driving a greater contribution from fee income to total revenue. We are seeing momentum across core fee businesses, including treasury management, card-based fee income and services such as international banking. Wealth management also is contributing to more noninterest income.

Consistent with our broader focus on improving profitability, we regularly evaluate our physical footprint to ensure it reflects how customers bank with us today and into the future. To that end, we closed four branches during the third quarter as we continually fine-tune our physical presence. We also opened a branch and a financial hub in Utah, adding locations to support our customers and bankers in our de novo markets. At the same time, we are bringing new talent to Columbia Bank and investing in the development of our existing teams, reinforcing our relationship banking approach and cultivating the next generation of leaders.

I will now hand the call back to Clint.

Thanks, Tory. From the outside, it was a relatively uneventful quarter for Columbia, reflecting another period of consistent execution. Behind the scenes, we are very busy. We've delivered 11 consecutive quarters of predictable financial performance while continuing to reshape our balance sheet and strengthen the franchise we have built across the West. We embrace technology and automation to improve the customer experience and make our teams more effective, enabling our bankers to spend more time serving their customers.

Technology enhances our relationship model. It does not replace it. We remain confident in our strategy because our customers are attached to relationships, not a robot. Our customers choose Columbia because of the bankers who know them and their businesses, and our branches remain an important part of how we build and retain these relationships. I want to thank our teams for their disciplined execution and drive to get better each and every day.

This concludes our prepared remarks. Chris, Tory, Ivan and Frank are with me, and we are happy to take your questions now. Towanda, please open the call for Q&A.

[Operator Instructions] Our first question comes from the line of Jon Arfstrom with RBC Capital Markets.

Nice job here. There's a lot of places to go, but maybe, Ivan, start with you on the margin. Thanks for the thoughts on the fourth quarter margin. But the 4.05% was a surprise to us, I think. I mean 4.11% was a big surprise, but I see the items, the 4.05% was a surprise to us. And I guess I'm just curious how you feel about the momentum in the margin, where you think this could go over time. You mentioned things like sub debt maybe suppressing it in the near term. But what do you think the trajectory of the margin could look like over time here?

Yes. Thank you, Jon. I appreciate the question. So a couple of things I'd say around that. First of all, just kind of unpacking Q4 in a little bit more depth potentially. Recall that while our margin for Q2 reported was 3.93%, that had some negative impacts that we called out last quarter, including the onetime credit-related interest income reversals and some of the accounting yield associated with the investment portfolio.

When you think about where we landed for Q3, there's really four factors in terms of how I have thought about the margin this quarter. First, obviously, we're benefiting from the absence of those headwinds that we called out 90 days ago, and you can see that pretty clearly on the walk on Slide 13. Second, as you get into the earnings release detail, you'll see that our loan portfolio optimization and what Tory articulated earlier out of lower rate transactional and into our core relationship commercial lending portfolios continues to help support stronger returns. And that's something that we do anticipate to continue as we look forward in this higher for longer rate environment. Third, we were, I think, very pleased with the results from a deposit generation perspective without really seeing at least quarter-on-quarter, a meaningful shift in the overall cost of the deposits. And like I mentioned earlier, that allowed us to continue to optimize the other side of our balance sheet, which has been a core focus of ours. with about $1.5 billion of higher cost wholesale funding coming down. And then we noted it earlier, but we did have about $5 million in interest income related to accelerated repayments. And that part of it is more onetime in nature.

The other factors are really aligned to the strategy that we're pursuing. And I think if you look back at the net interest margin over the past four, five quarters, you can see the progress, and it's not always linear. But we anticipated, as we've talked about, I think, pretty openly crossing over the 4%. As we look further on, we'll continue to expect to be operating in that low 4% range for the next several quarters.

Q4, a few things I'd say around that 4.5% Number one, we will be holding some amount of excess debt as we work through the TruPS redemptions. And that's really just a function of kind of the timing associated with the sub debt issuance versus going through the various redemption activities over the course of Q4 and Q1. We'll work through the majority of that, but that will cause a couple of basis point headwind as we operate through that. And then number two, we tend to see seasonal outflows in the second half of Q4, like many of our peers do. And so we factor that into our modeling as well for Q4.

And so if you would have asked me and if I would have been willing -- which I wouldn't, by the way, but if I would have been willing to give you a Q4 number 90 days ago, I would have said 4.05% at that point as well. And so we're definitely pacing towards where we expect to be. If we do outperform that, I think it will be a function of what we've seen within rates and the rate impact on asset yields potentially impacting our margin more rapidly than the funding side, but we'll see how that shakes out as we move through the course of this quarter.

Yes. Okay. Very helpful. It's a good performance. Maybe just a follow-up on that, Tory, on the origination pace. You mentioned some irrational competition in spots. Can you touch on that a little bit? And then just also maybe comment on what you're seeing in the pipelines?

Sure. Yes. So production was really strong and steady, pretty consistent kind of quarter-over- quarter-over-quarter. So great to see that. And kind of as I look into Q4, it looks pretty comparable and like the direction that the teams are going in. The irrational behavior sometimes in some markets is a little bit silly, especially on the real estate front. We -- you either see much too much leverage in a deal that we're just not interested in or without any real recourse, any guarantee, so a nonrecourse structure that the income from the property really doesn't warrant it or you're seeing rates that are crazy low. We've seen a bunch at a SOFR plus 100. I haven't yet to see one dip below 100, but I know it's coming. And so we just kind of have a quick conversation with the teams and just pass on it because it's not something we want to do.

But -- and I've been looking a lot at it to see geographically or product type or kind of where it's coming from, but it's -- there's not a ton of it, but -- and it's broad-based. So it's not in one geography or one asset class. It's kind of spread out a bit. And it's not all the time, but it's enough to kind of make you shake your head for sure.

Our next question comes from the line of Chris McGratty with KBW.

Clint, for you, when you announced last year's buyback, which is about a year ago to the day, I think I asked you like intent to use and you said we're going to do it and you did. So when you gave the guide for the Q4 of the $150 million to $200 million, how do we think about the pace of the $1.2 billion? I guess it's a lot in there between the trough and the balance sheet. You're making a ton of money, you're redoing the capital stack a bit. But it feels like that $150 million to $200 million pace could move higher over the next few quarters, but just opportunity to agree or disagree?

Yes. I think we're comfortable with the pace that we've been at that $150 million to $200 million per quarter. We did the authorization that we just completed had a duration of 12 months. We didn't put a 12-month cap on this one. So I guess you could do the math and think about that our run rate that we've been doing in the last several quarters, if we just roll that forward, there's a little more time for that to run past, say, the next 12 months.

Again, though, all things being consistent, the economy still being resilient and things of that nature, our intent is to fully utilize it. We didn't throw a number out there that we don't intend to utilize, but the pacing of it will be pretty consistent, I believe, with what you've seen over the past year. unless we see some sort of major pullback in the stock and then again, we would have the flexibility to do a little more at that point in time if conditions warranted.

Okay. Great. And then maybe for you and Ivan, just the triangulation between the capital targets, your risk-based, I think, has always been your kind of binder, but CET1 and TCE. Any more comfort giving us kind of a bogey that you're targeting over the medium term?

Well, I think we've been pretty consistent 15-plus years in terms of where we want to be on the target level. We've also had a hard time getting our capital down to those target levels. I think -- and Ivan can speak more to. I don't know if he will share with you, but all the modeling that he's done and stress scenarios and how not only the newly authorized repurchase plan, but also our regular dividend. And we feel really comfortable with those stressed results and our ability to continue to return capital to shareholders.

The one area that we've talked about in the past is the TCE ratio. And just kind of naturally over time in a stable operating environment, 12% total risk-based capital, 12.5%, somewhere in there equates to roughly 8% TCE. And at least on our balance sheet, that's been the historical alignment. I exclude the AOCI to a certain extent when I'm thinking about TCE, just like as we were building from below 7% to well above 8% over the past couple of years, I excluded it at that time as well because we have a phenomenal deposit base. We have great liquidity, and we have the ability to hold those securities that are driving those AOCI marks to their maturity or until the rate environment changes course a little bit.

So -- and I think also back to the modeling that Ivan and his team do, they also model additional rate shocks and what that impact is on our tangible ratio. And we have a lot of comfort around it. I don't know, Ivan, if you want to add any detail?

Not a ton to add there. Like Clint indicated, every single quarter as we go through this, we model out what we expect from a capital generation, capital needs, payback period associated with the repurchase program. We're also keenly aware and monitor closely capital ratios on a marked capital basis, including TCE to TA. Like everyone else, we're also keeping an eye to the future with regard to monitoring the potential regulatory capital effects of Basel III proposed rulemaking, and we have a sense for what that could offer, but we're not explicitly counting on that sort of capital relief at this point in time.

So long-winded way of saying that it all goes into the mix. We keep track of all of it, and we're comfortable with our current levels, confident in terms of the capital generation that we're going to create here in Q4 and into 2027, and that all goes into the equation as we balance out the capital impacts.

I guess the last thing I would say, and you didn't explicitly ask about it, but we're also kind of in the midst of kind of our Tier 2 capital remix strategy, as you know, Chris, with the bond issuance that we completed in Q3 and then the associated redemptions that we're working through now. So that's an active part of our capital management that we're in the midst of as well.

Our next question comes from the line of Jeff Rulis with D.A. Davidson.

If I could swing back into the margin for a minute. Ivan, I wanted to make sure I get the headwind in Q4, but it sounds as if you're alluding to that flips as you get those TruPS redemptions, that will ultimately turn into a tailwind? I just want to understand that piece first, I suppose.

Yes. And so I won't go over all the details of the specifics of the sub debt issuance. We completed that 10 non-call 5 transaction in mid-September. And so when we think about Q3 and the funding profile of the bank, that really was only in effect for two weeks out of the full quarter.

The TruPS activities, we're working through the redemptions that we've identified as potential. In totality, there's about $240 million worth of Tier 2 capital in the form of trust preferred securities that will be redeemed. About 80% of that pool, 75%, 80% of that pool will be redeemed between now and the end of this year, and then we'll have kind of a hanging chad that will clean up in Q1 of next year. And so really, what that does is it means that we've got somewhere in the ballpark of $200 million of excess Tier 2 capital. That is our most expensive form of capital, whether it's the legacy TruPS or the sub debt. And so we'll have a slightly higher reliance upon that in Q4 relative to Q3 and relative, as you said, in terms of potential future 90 days from now as we talk about outlook for Q1, likely talking about that as a modest benefit going into next year.

The other dynamic is more just the seasonal flows associated with our deposit portfolio. Q3 is seasonally strong for us. And that wasn't the entirety of the strength that Tory talked about earlier. I'm sure we'll talk more about it here in a bit, but that was a factor in Q3. And we tend to see a little bit of an outflow in the second half of Q4 from a core deposit perspective typically. And so that's worth a few basis points as well. So those are the two things that we're looking at in terms of that -- guiding to that 4.05% relative to that pro forma adjusted 4.08% for this quarter, excluding the onetime accelerated prepayment.

Right. Sorry, I was kind of alluding to '27. If you just think about the major pieces of -- if you enter the year with maybe the seasonal deposit outflows are a headwind in the first half, but the trough redemptions, the flip of what's happening in Q4 is maybe a net positive, then you layer on the favorable back book repricing potentially in '27. I just want to like net that out, it still looks like a 4.05% starting if you're going into the year, it's still a net maybe positive upward trajectory. Is that fair to say on the margin?

I think that's fair. Although, Jeff, it almost sounds like you're trying to tease out a 2027 guide, but I know you're not. What I would say, we're still going through our planning on 2027, but there are a few things, I think, that we could expect at least as we turn the corner into the first half of the year, I think on the balance sheet, you can largely expect more of the same over Q4 and Q1 as we continue to optimize the mix of loans out of transactional and into core relationship-based commercial lending, which, as you've seen throughout the course of this year, mutes the actual balance sheet growth, but does provide what you're alluding to, which is positive revenue momentum in the form of margin expansion.

We will continue to maintain what I would call an intense focus on driving core sticky client deposits and leveraging that funding to continue to optimize our wholesale sources. And I think when we've connected with you in the past, you'll note that, that's not linear, right, that there are seasonal flows associated with that optimization, but that will continue as well. And so I think the resulting NIM kind of in that low 4% range to start the year, but continuing to expand is a reasonable expectation when you put those puzzle pieces together.

Yes. Just trying to get to the drivers. I appreciate it. Maybe hopping over just one other question on the provisioning and the reserve levels. You had net loan runoff this quarter and NPAs down. And I guess, theoretically, you've got a more relationship-heavy model, so sort of derisking in some ways. I just want to get some understanding of the reserve build in -- with some of these other factors would suggest maybe lightening up. I appreciate it.

Yes. You're spot on. And I guess one of the things I would say is I would categorize -- I'm not sure I would note this being a material shift, right, going from -- it's basically a 1 basis point movement in our overall allowance for loan losses the economic backdrop that we put into the model this quarter versus 90 days ago was pretty darn similar. I think the one difference being the rate environment and not just kind of where we're at today, but what the model expects going into next year, where I think most folks are modeling a further increase later on this year and then anywhere from 1 to 3 increases over the course of kind of the first half of 2027. Whether or not that translates into more pressure for certain borrowers in real estate and other verticals or not is probably beyond my crystal ball to read. But I think that's probably what the model is catching up on is just that factor.

So it's really more the economic backdrop that I think the model was picking up versus anything idiosyncratic in our portfolio. Look to Frank, if he wants to add anything to my comments here. But generally, in terms of what we're seeing in our book, it's been very positive.

No, I think you said it really well. I don't have anything else to add.

Our next question comes from the line of David Feaster with Raymond James.

I wanted to dig a bit into the deposit growth. really strong. Obviously, there's some seasonal dynamics, nice tailwinds from the small business campaigns. Could you just touch on some of the drivers that you're seeing on this outside of maybe those two dynamics? How much is commercial versus retail, new account growth versus deeper relationship? And if there's any markets or segments where you're seeing more opportunity for growth? Just kind of curious what you're seeing there.

Yes, David, I'll kick it off, and then I'm sure Chris and Tory will fill in the details on that. But I think it comes back to what we've been saying really for the last 3.5 coming up on 4 years is post the Umpqua acquisition, we've been running the legacy Columbia model. And a little bit of that's been tempered by -- optically by the balance sheet repositioning and things. But each quarter, we've talked about the activities of our bankers, and that's what we really focus on. And I know a lot of folks run their models off of just earning asset growth, but I really look at it from the standpoint of are our bankers doing the right activities. And you can see that as time progresses, both the consistency and stability of our earnings, the growth in fee income, which is a byproduct of what we're doing in the commercial C&I side, the small business activity that we're driving out of there.

We had another great year in terms of the SBA rankings. It's been a big focus of ours and making sure that we are serving the smallest businesses as well as all the way up through the upper middle market. So I think that what you saw in addition to third quarter is always our seasonally strongest from a deposit standpoint. But I'll point you back to it's our business model and it's the ongoing activity of our bankers that are committed to that model.

And I'll step back and see if Chris -- Chris is anxiously waiting to add his commentary here, David.

Anxious, very anxious. Thanks for the question, David. Yes, small business campaigns, they extend across quarters. So I want to be pretty upfront that that's not driving all of this growth. And there's no special products. There's no special pricing. It just allows our branches to have a common purpose and actually have some fun. I think though, most of all, we're proud of the focus of our bankers that they have on relationship selling to not only new customers, but to deepening existing customer relationships. There's lots of opportunities there, too, with deposits that are held elsewhere.

I'd also kind of pile on to that of campaigns are just a piece of what we do. The third quarter deposit growth, it is truly a team effort across our franchise, and it touched every single business line. And was previously stated earlier in the call, the deposit growth is driven in a disciplined model towards pricing. I mean, holding our cost of funds steady while we continue to remix from higher-priced CDs into core deposits. is it's -- actually, it's fantastic.

And simply put, and I'll turn it over to Tory, I would say this is how we do business.

Well, between Chris and Clint, they probably stole all the thunder, but I got a couple of things I want to add because I was very proud of the commercial folks this quarter. They had nearly $1 billion in customer deposit growth. And it's a combination of new customers, new relationships and new money to the bank with just growth in existing accounts but then also confidently going back to our customer base and having -- and really having that confidence to have conversations to bring any balances they have other places into the company. And I give a special shout out to those folks and our treasury management folks for the work that they did. Clint talked a lot about activities and behaviors. And we have, over the last year or so, really instituted some accountability around working capital assessments and relationship reviews, and it's producing some really nice results for us, not only in the deposit side, but on the fee income side.

And just to give you a couple of stats that are, I think, very relevant to it on the fee income side. Our treasury management business is up 7% year-over-year. Our international banking business is up 19% year-over-year. Our commercial card business is up 23% year-over-year, and our merchant card business is up 11% year-over-year. So all of that is a result of some real core behaviors and activities. I think the teams are doing great.

Lastly, Clint talked about the integration with Pacific Premier. When you look at the deposit growth for commercial, nearly half of that came out of legacy PP Southern California folks and really shows that they have fully integrated into the company, and they're making some real progress in their existing customers, but getting out in the markets and taking advantage of who we are there to grow our customer base in Southern California.

Okay. That's super helpful. And maybe just touching on the expense side. Look, you've always been cost conscious. And we've talked about this previously. It's a part of your DNA how do you think about the expense front? Like where are you finding these savings and improving efficiency to fund the investments that you're making? And just what are some of the key investments that you're focused on as it relates to tech or hiring and even some of the branch expansion that you highlighted in the release?

Well, David, you as always, tend to pack a lot into a single question. And so as a group, we'll try to do our best to touch on all those points. And I'll just start off by saying that we've put three large organizations together. And any time you do that, there's processes and things that maybe worked for one organization, but are not as efficient as what they can be for an organization with our size and scale now. And then you add into that the speed to which we can automate things.

And again, I'll go back to my prepared comments about we have a lot of technology. I think our platforms are contemporary. We don't shy away from that. But that's a tool. It's a tool that helps remove friction, increase our speed to market, take care of our customers and create a better employee experience. So we're always looking at how do we get better every day. The team, and you've probably heard this over the years, whenever they come forward with an investment opportunity, it's usually do you have an offset. There's got to be an inefficiency somewhere in your vertical, go find it and use that to offset it. And in the rare occasion that we can't find an offset, then we let the revenue projections speak to themselves, and we'll make the investment that way. And that's kind of similar on our branch -- our de novo branching activity is we determine if there's an underserved market, if there's a gap in continuity of our existing footprint, things of that nature.

And most importantly, do our commercial bankers in those markets, are they pushing for and requesting and stating the need for a branch location? Because once they do that, then we know the whole market is committed to making that a success. That's been the model we had, I don't know, six, seven years ago when we put our first branch in downtown Boise. And that's the same model we've utilized as we've expanded to Utah, Arizona and Colorado as well as within existing markets. We just opened a branch last quarter in Las Vegas. And that's one that, again, the teams were saying we need some infrastructure. We can leverage that. We can bring in more commercial customers.

So I'm sure I've only touched on a fraction of the points that you had, so I'll step back and see if Ivan, Chris or Tory want to add anything.

I mean not much to add from my perspective other than, David, I know we've talked about this when we've been together here over the course of the year that we flagged from the very beginning that we thought we had a unique story to tell for 2026 with embedded within positive operating leverage, right, with revenues coming up as we continue to optimize our business, continue to drive the core fee income that Tory talked about with a lot of singles and doubles.

And then on the expense side, a scenario where we had an opportunity to -- as revenue goes up from H1 to H2, an opportunity to take expenses down. And I think we've been extremely disciplined in execution of PPBI. I think we celebrated outperforming our original goals and targets with regard to identification of cost savings, predominantly in vendor-based spend and contract spend, which is great. And that's allowed us the -- frankly, the luxury from my perspective of continuing to reinvest while still staying within the guardrails that we've established for ourselves in funding.

And again, this quarter, being able to redeploy some of that capital into future growth in the form of expanded physical presence in markets that we are really excited about. And I think as you look out into next year, that discipline will continue as will the reinvestment. And so I think it's a pretty good mix with regard to that.

The only thing I would add, this is Tory, would be some of the people side of it, where to Clint's point, we find an offset, and we've invested some on the commercial banking side in Utah and Arizona, our Native American banking business and then our fast food franchise business. Those are like four or so areas where we really look to increase the number of folks, but the talent. And we're bringing in some incredibly talented bankers in many, many parts of the company, but specifically those areas.

Yes, David. And what I'd add on that is we're doing the same thing in the wealth management space, pretty excited about some of the talent we're currently talking to. And when you look at the addition of the private trust business, joined us a year ago from Pacific Premier. Wealth Management continues to become a bigger presence, a bigger part of that noninterest income in the last quarter was actually our second largest source of it. And so we're expecting great things out of that and continued growth as well.

And maybe just kind of following up on some of those to some degree. I mean, Clint, the way you started out the call was talking about the consistency of your performance and what you guys have done. And we spent a lot of time talking to investors and talking about the durability of earnings. What gives you confidence -- I mean, a lot of that, that we've talked about has been a decent amount of self-help and balance sheet optimization. There's still some tailwinds there. But we had tailwinds from the synergies from the deal. And again, a lot of the repricing and shrinking of net negative yielding assets. What gives you confidence that that's sustainable going forward just as rates are rising and competition is intensifying and there's potential for weaker macro trends? And just kind of curious what gives you confidence that, that's sustainable going forward?

Well, David, what we can't control is the macro environment. And so there's a little bit as our industry, as the macro environment changes, our industry either gets headwinds or tailwinds, and we face those same headwinds and tailwinds. But we do focus on what we can control, and we can control our expense discipline, our pricing discipline, the quality of our fortress balance sheet, the granularity and diversification that's on both sides of the balance sheet, whether it's the loan portfolio, the quality of our investment portfolio or our core deposit base. And that has given us a very resilient, stable performing company that throughout -- really throughout the 33-year history of our company and various business cycles.

I'll use the GFC as an example. we took our lumps just like everybody else, but we came through it, bought five failed banks from the FDIC and built the company that we have today. So it wasn't fun, but it was an opportunity for us to really to thrive coming out of it. And a lot of our customers, we view the same way. They're good operators. And whenever their industry goes through any type of pullback or downturn, they usually come out stronger because it's the weaker operators that go away or retrench. And we're no different in terms of how we think about our business.

And so I always look at on a relative basis, how are we doing -- and we've stated that our objective is to always be top quartile. And if we're not, then we're working hard to figure out how to get there. And so it's just -- I've seen it play out over the last 21 years. And when I say we're running the historical Columbia business model, you can see that in terms of what's coming on the balance sheet, what we're flushing off the balance sheet. And then we have these tailwinds that you mentioned, mixing out of lower-yielding assets, mixing into more of our traditional assets that are coming on at 200-plus basis points higher than the stuff that's rolling off. And then I know we still have pockets of inefficiency within our company that either exist as a byproduct of the bringing Umpqua and Pac Premier under our umbrella or just with the advancement in technology and our ability to do things quicker and better. It's not any one single thing. It's really just being focused on every little detail.

I think I probably drive the team nuts sometimes with some of the details that I come back and ask them with. You're pretty busy right now. I mean you've got a baseball team to root for in the World Series. We didn't get any -- Mariners didn't make the playoffs. So October, I spent a lot of time digging into the weeds instead of watching baseball. And so that's why I'm pretty confident that we still have some things we can do. Are any of them going to move us from, say, a 1.40% ROAA to 1.60%, no. But what they will do is enable us to maintain our level of performance, maintain that top quartile and top decile returns and continue to make these investments in our company, whether it be platforms or some of the investments in people that Tory spoke of. So yes, we're just a lot of optimism.

Our next question comes from the line of Bernard Von Gizycki with Deutsche Bank.

Just on the geographic optimization, you opened up the two locations in Utah while closing the 4 branches elsewhere. Are there any particular states where you have more optimization remaining, i.e., branch closures than others? Or just like to hear some color on the effort. And Tory, I believe you said it's more just fine-tuning, so maybe there's not a lot to go.

Well, and I think Chris and Tory can add their thoughts. But when we look at where we have a lot of density and the way that the company was built over time and some of the markets that we're in, and they're stable markets. They're not high-growth markets, but we have great market share and plan to stay in each community that we're in. But you look at kind of -- let's use the Phoenix market as an example. And I think we have five offices there now. We probably, over time, maybe need two or three more, and we'll have the entire metro area covered in terms of how we think about folks -- my view is folks will drive 30 minutes if they have a problem that they need to solve or they have -- they want to strategize and meet with somebody in person. In our metro areas, 30 minutes is kind of what everybody's commute is anyway. So in a market like Phoenix where traffic moves and everything, we can do it with a very branch-light approach.

The problem that we were trying to solve, and we spent a couple of years trying to solve it, but Pac Premier solve it for us was how do we build that kind of density in Southern California because One, it's an immense market. Two, 30 minutes with L.A. traffic, you might go 2.5 or 3 miles. And so that's -- it's really market by market.

And then I look at things like Washington. So in Washington, we have our highest branch count. It's a few more than what we have in Oregon and a few more than what we have in California. But there's an underserved market that we're looking at right now. And we believe that, that branch would be profitable very, very quickly. And so it's just sometimes being opportunistic. Sometimes it's satisfying the request from customers who are saying, there's an unmet need here and then assessing it and determining the type of value and business volume we can drive from it.

And so where we look at it, we've kind of -- we probably need some more infrastructure in Colorado to properly serve the Denver market. What we did in Utah was we had some money pigeon hole for Southern California that we're able to divert and reinvest in the Salt Lake area. And I feel like that strategically, where those offices are placed are pretty -- we pretty much have coverage that we need in that market. So we'll shift our attention to some of the other locations.

Chris, do you want to add anything?

Yes. The only thing I'd really say is that fine-tuning is always going on. What Clint described is it's almost a daily process. We're always looking at branch profitability, coverage, where customers are going. I'd kind of just say it as demand drives some of those new opportunities and customers certainly do. And beyond that, what you won't see is a mass announcement of closures or something of that nature, and we're going to be pretty strategic on any new locations. But expect to see probably some down the road.

Great. And just as a follow-up, just to clarify on the $1.2 billion buyback authorization, was it contemplated the potential capital relief from Basel III in that? Or is that still just additive? Just kind of curious on that one.

No, no, that would be additive. Like Clint indicated earlier, unlike what we talked about 12 months ago almost to the day, this one does not have a time-bound nature to it. So we do have flexibility to look beyond a 1-year marker with what our Board has authorized regarding that. But no, we're not counting on Basel III regulatory capital relief to be able to fully leverage that program. But again, it will take longer than the 1-year marker that we executed this latest authorization under.

Our next question comes from the line of Matthew Clark with Piper Sandler.

I wanted to hone in on that securities yield up nicely this quarter. I know last quarter, rates up, you got tagged with accreting less of the discount. But just wanted to answer the question that I'm sure I'm going to get as to why that wasn't a headwind this quarter with rates up.

Thanks, Matt. I'll take that one. So yes, I think you've got the back story right. And you'll recall that last quarter, I noted as part of our discussion around the investment portfolio itself that while we had some temporary headwinds with regard to the accounting yield, I expressed confidence that over a long period of time, we'd continue to see the bond portfolio yield increase, which is essentially what we're seeing.

We continue to have the dynamic of purchases and front book acquisitions in the bond portfolio coming in at significantly better yields and rates than the back book as that kind of matures off or amortizes away. And we've got something like $250 million to $350 million per quarter of that activity occurring. So you think about kind of modeling us out over a longer period of time and/or if you look kind of on a year-on-year basis, you'll continue to see that fixed asset repricing story continue.

More specifically to your question, last quarter, what we saw was a decline in the discount accretion associated with rising interest rates essentially translating into slower prepayment speeds. And directionally, I think that, that makes sense. But what I would -- I guess, the nuance that I would introduce to the conversation there is that for those underlying assets, predominantly mortgage-backed securities and commercial mortgages, rates and prepayment speeds aren't linear. And as we dig deeper into the modeling, there's typically an S-curve that goes into it.

And so unlike last quarter, we didn't see a meaningful headwind to discount accretion via CPR speeds in Q3. So rates moved up, but prepayment speeds essentially already reset or adjusted to very low levels last quarter in response to the initial rate increase in the marketplace. And so with refinance activity already minimal, this quarter's additional rate movement didn't really translate significantly into CPR speeds. Overall, our discount accretion on the securities portfolio in Q3 wasn't all that materially different than it was in Q2, i.e., very low, but it's still significantly below what we recognized in Q1 when we were in a lower rate environment.

And so if you were to kind of balance out two factors, last quarter, the factor of discount accretion recognition reduction was greater than the core back book repricing factor, and it was the inverse this quarter, right, that we kind of took our lumps and sustained at a lower level on discount accretion recognition in Q3 and then really the core thesis being kind of that back book repricing kind of carrying the day from a securities yield perspective.

Probably more than you asked for, Matt, but you did ask. So I figured I'd get into the details there a bit.

That's great. Great color. And then just on earning asset levels and loan balances, net loans down less than last quarter. I think the expectation is flat to down until maybe mid next year on loans. But just help us think through kind of net loan balances. I would assume they're still maybe down a little bit, but -- and overall earning asset levels over the next few quarters.

Yes. I think you've got it right. I think for the next quarter, two quarters, probably three quarters, you can continue to expect to see more of the same from us in terms of core focus on driving relationship-based lending. The variable there that probably is the most -- the transactional portfolio has been fairly consistent, and we keep a very close eye on that. I look at it almost daily in terms of the trends that we see within that portfolio. One factor that could play out in Q4 and into Q1 is a slight reduction in CPR speeds in that book as rates have reset to a higher for longer environment. But it's been pretty consistent in order to plan around that transactional portfolio at roughly $0.25 billion per quarter.

The CRE marketplace, as Tory described it earlier, is dynamic. And we have each and every time, erred on maintaining our discipline, both regarding structure and price, as Tory talked about. And we think that, that is serving us very well as we continue to kind of work through this in a disciplined manner and optimize our portfolio. So I think flat to slightly down over the course of Q4 and into Q1 would be a fair expectation there. And then maybe I'll just ask Tory if there's anything else he'd speak to in terms of what we're seeing in the marketplace.

No. Other -- activity-wise, pipeline, the things that I'm seeing on the commercial side of the house is pretty confident that our C&I growth can remain in this low to mid-single-digit level, kind of consistent with what we've done in the last three quarters, obviously, barring any big macroeconomic headwind. But lots of good activity, lots of good stuff going on in the various parts of the franchise. So feel relatively optimistic to kind of continue what we've been doing.

Our next question comes from the line of David Chiaverini with Jefferies.

I wanted to ask about deposit costs. You guys mentioned about down 1 basis point. Can you talk about deposit beta assumption and the outlook from here on deposit costs?

Yes. Great question. You'll note, I think, in our materials that we now have kind of the yo-yo is going to keep bouncing around here. So we showed an up run in the beta there and then a down run. We've been pretty consistent, and I've guided to a 50% beta on a through-the-cycle basis. And when I think of that beta, I tend to view it -- my personal bias is to view beta over the course of months and quarters, not days and weeks because some of these things take time to fully settle in.

What we saw in the marketplace is in Q2, really the market started to react in what we've seen from a competitive pricing perspective. We did adjust some of our pricing around our money market and CD rates over the course of summer. But we've maintained discipline on as rates have increased. So yes, I would say kind of 50% beta is a fair assumption going forward, thinking about Q4 and beyond.

I'll turn it over to Chris.

Yes, David, what I'd add to what Ivan laid out there is that he previously in this call stated that fourth quarter rates could project it to potentially rise -- we always look at it from the standpoint of whether rates go up or they go down, we're going to perform better than the peers. And I think we've been able to show that through this latest cycle that we're able to hold the costs low through our relationship strategy and disciplined approach between higher-priced CDs and things of that nature. But the goal is to outperform what the market is, what Ivan puts out there is a good proxy for it, but we battle it each and every day. We talk about deals each and every day, and it just all adds up. So it's just part of our discipline.

That's helpful. And then on the noninterest-bearing deposit mix holding in nicely at 33%. How do the pipelines look on that side? Is the ability to hold this steady kind of in the cards given -- or I should say, despite the backdrop of higher rates?

Yes. This is Tory. I would answer that pretty briefly and say, yes, the goal in the assumption is to continue to maintain that mix. It's a result of core operating accounts, new businesses brought into the company, managing and working through all the things we've been talking about for relationship banking. It's just going to come with noninterest-bearing demand deposits. And that's the emphasis and focus.

Yes. In the current rate environment, that's a pretty steady. We've seen it be steady, and that's kind of the mix that the customers are -- how they're choosing to keep their money between operating accounts and money market accounts or whatever it may be. It would take a pretty significant rate decrease before people start looking at it and going, there's no reason to move it into a money market. So I think that's the goal, and I think we're seeing that just over and over with -- especially with new customers as well.

One thing that we do, do -- I'll just add on one thing real quick is this relationship profitability model that we leverage in the company of how we price loans, how we price deposits is dependent on all the various pieces that we earn from the customer. So some of that is just good old-fashioned blocking and tackling and telling customers, hey, this is what you need to have with us so that we can maintain this level of pricing so that we can all continue to win and be profitable.

Our next question comes from the line of Janet Lee with TD Cowen.

You've clearly made a lot of good progress running off and repricing the transactional portfolio. I just want to make sure that I'm understanding this correctly on Slide 25. The nontransactional loans there have been flat over the past year. Is that basically new production being offset by payoffs? And then what changes that gets overall loan growth back to positive around mid-2027.

Yes. Page 25 is just a quarter-on-quarter view. So it's not a full year-on-year. But you're right that excluding the rundown in the transactional portfolio, it's been roughly flat over the course of the quarter. We talked about production levels. We've, I think, bounced around between, call it, $1.2 billion, $1.3 billion. I think we've hit a high point potentially from a production perspective on lending up to $1.4 billion. So we've been in that range pretty consistently. So it hasn't been -- you don't see a lot of volatility in terms of the production that we produced.

We continue to, as Tory alluded to earlier, drive core commercial lending kind of in a 5%, 6% annualized level pretty consistently each and every quarter. So it really has been that transactional headwind from a growth perspective that has held our balance sheet level kind of in check to where it's been here in the last several quarters.

What could change that? A variety of factors macroeconomically, I mentioned earlier that there's the potential that some of these transactional credits stick around for longer under a higher for longer scenario. That does occur, we still have the benefit of repricing behavior within the portfolio. The buckets that we laid out here on Slide 25 are generally not maturity dates, but they're when these assets come up for repricing. And so even if they stick around for a little bit longer, they become less and less of a headwind. And I think you see that in the form of this transactional portfolio kind of inching up over time in terms of the yield associated with it.

Okay. It seems like it's $40.3 billion, the same from a year ago slide, but maybe I'm misunderstanding something, can check back. You've been obviously holding the line very well on expenses, which is really impressive. But as the growth accelerates in 2027 versus 2026, should we -- like should the growth trajectory on expenses change in any meaningful way versus what we've seen over the past couple of years?

Great question. Obviously, this year, we had -- over the course of Q4 in 2025 and then Q1 and Q2 of this year, we were operating through identification and execution on $127 million of PPBI cost synergies, the $127 million being our original target, we outperformed that. I think we landed at $132 million or $133 million in terms of total identified savings. And so that provided an opportunity to continue to bring our expense base down from H1 to H2. I signaled that a range for Q4 that's pretty static to where we landed this quarter in terms of operating expenses. And then as we think about 2027, we guide to something that is in the realm of kind of inflationary-based expenses, something in the 2% type range is probably a pretty reasonable modeling assumption.

Again, we're building our plan now. We'll continue to invest in infrastructure and people and technology to grow the bank for years to come, but we'll continue to maintain our discipline and find offsets where possible.

Our next question comes from the line of Timur Braziler with UBS.

In reference to Slide 21, it looks like Slide 21. It looks like payoff activity slowed this quarter. I'm just wondering, was that also rate driven and maybe prepay slowing? Is that level sustainable? And then maybe just provide some color on that $417 million in the other column.

From a payoff perspective, yes. We did start to see a little bit of reduction in prepayment speeds over the course of Q3, in particular, in August and September as rates rose. It's anyone's guess as to how that's going to manifest in Q4, but I would suspect that prepayment behavior will slow down and relative to earlier in the year in the first half.

I didn't quite catch the first half of the -- or the second question there that you asked.

It looks like in the other column, it's negative $417 million. That number is larger than it's been in recent quarters. I'm just wondering what that driver was.

I don't have that readily available. So maybe we can follow up with you on that one.

Okay. Great. And then maybe just circling back to the deposit commentary. It looks like there's a decent slug of CDs that mature here in the coming quarter. I guess what's the intent to retain the maturities there? And then I appreciate your comments about starting to adjust some of your rates for increased competition. I'm just wondering what your current CD replacement rates are.

Yes. In general, I think the movement that you've seen over the course of the last year around term deposits, a lot of that movement was in the function of brokered CDs. You can see in kind of our liquidity slide that that's a very small piece of our funding stack at this point. So we really have kind of finalized the optimization of our brokered CD portfolio.

The vast majority of what remains is retail consumer CD portfolio. We are working to kind of stabilize and maintain that portfolio at its current size. I think we're seeing kind of CD rollover rates probably north of 80% in general, Chris, which is kind of where we'd like to be there. We've adjusted some of our flagship offers really in kind of the 6- to 9-month term structures at this point, although we continue to look at the rate environment outlook, what's likely and then balance that out with our asset liability management position. And so we'll continue to be active usually 1 or 2 terms per quarter where we'll look to adjust our pricing.

I'll see if Chris wants to add anything.

Yes. I would add to that is we really look at those CDs on a daily basis of what's renewing, what's coming in. Obviously, we could -- if we saw a need to boost the retention rate, we could change the underlying rate for tomorrow. and vice versa, if we were renewing too much, we could take it back the other day. So it really works hand-in-hand with what our other balances are doing as well. We don't utilize it as a one-off, let's drive balances through higher-priced CDs. We use it as a tool amongst the whole portfolio.

We're pretty comfortable with where it's at. We're comfortable with where we fall into the market. You saw earlier in the year where people -- a lot of banks went out and raised out and raised rates, and we held ours down for a while and continue to monitor it. And then we've come back to where we typically fall kind of in the middle of the pack or so. Again, I'm not sure what the competitors are going to do, but Monday, I'll know what the new offers are, and we'll go from there.

Ladies and gentlemen, due to the interest of time, our final question will come from the line of Jared Shaw with Barclays.

This is Jon Rau on for Jared. Most of my questions have been asked, but just looking at the treasury management growth that you've had this year, what's the penetration that you have of your commercial customer base using that product? And I guess how much more runway is there to keep expanding that?

This is Tory. A couple of things. The -- I'm going to go on memory here a bit. Penetration rate for treasury management and commercial is roughly 58% the growth has been from a few different things that we've incorporated. One -- and when I think of treasury management, I'm also kind of adding in some of the other fee-based products, some of the big ones that we mentioned earlier. We have -- based on customers' behavior, we have a technology in the company that gets driven through Salesforce that based on customers' behavior in their accounts, it kind of signals kind of a next best offer for the customer, which could be it could be commercial card, it could be international banking, it could be something else. And so I think that's feeding that to the sales force and our sales force, and we're just getting -- we are getting better and better and better at having -- of leveraging that technology, having relationship reviews with customers, providing working capital assessments with customers and just driving the opportunity that our customers need and want to more efficiently and effectively operate their business.

The last thing I would just say is over the last year, we've added some not incremental cost into the company, but we've added some really strong -- really strong treasury management salespeople in the company. When I think about where we've added bankers throughout the franchise, I think the greatest acumen and strength and just banking prowess has been in our treasury management folks. They've really elevated the game and they're doing some great things. So all of those things combined are, I think, allowing us to continue to focus on it and grow the business.

Ladies and gentlemen, at this time, I would now like to turn the call back over to Jacque for closing remarks.

Thank you, Towanda. Thank you for joining this afternoon's call. Please contact me if you have any questions or would like to schedule a follow-up discussion with members of management. Have a good rest of the day.

That concludes today's call. Thank you for your participation. You may now disconnect.

Thanks. Good morning, everybody. We're pleased to continue the morning with Columbia Banking System, Inc. We have Clint Stein, the Chairman, President and CEO; and Ivan Seda, the CFO, joining us today. So thanks a lot for coming all the way in from the West Coast.

Thanks for having us.

Maybe starting off, we're now well into the third quarter. How would you characterize the operating environment today relative to where things stood at the end of July? When you think about customer activity, pipeline, sentiment and competitive behavior, what's gotten better? What's gotten tougher? I guess what surprised you the most?

There's a lot of different aspects to that question. I think the -- from my perspective, not much has changed in terms of our pipelines are pretty much where they were in July. Customers are still moving forward with their projects and activities and investments. Competition is -- it started really picking up in the second quarter on the deposit side and then some -- what I characterized in the second quarter as borderline irrational things on the loan side. So we still see that.

There's still a big push for folks that are just trying to grow totals on their balance sheet. But so far, our bankers have done a great job of navigating that. And part of that is the markets that we're in, our positioning within that market. So I guess if I just had to sum up the third quarter, I would say it's just been a continuation of the second quarter.

You just described parts of the market as irrational and increasingly competitive. I guess, where is that showing up in loans and deposits more specifically? And how are you deciding when to compete aggressively versus when to step away?

So we see it on the loan side. We see it in both pricing and structure. And oftentimes, we can compete on the pricing element. We're not going to relax our underwriting standards and give on structure. Our value proposition isn't to be the low-cost provider or a max proceeds lender. It's -- we work really hard and have for many years to be a trusted adviser. And with that, we expect to get paid for that. That comes with a premium price.

So from that perspective, if we're going to compete and get a little more aggressive on pricing, we really look at the entire relationship, what's the profitability of it? What are the offsetting elements of it? Do they have significant noninterest-bearing deposits with us? Do we have their treasury management? Their corporate card? Do we have a wealth relationship with the owners or executives? So all of those things, and it's really kind of on a loan-by-loan, customer-by-customer basis that we'll make that determination as to if we want to compete or if we want to walk away.

For new relationships, it's a higher bar because you don't have -- you don't already have all of those things. And so that's typically where we'll just step back and say, come see us when the market is more rational. The deposit side, it's more excess liquidity that people are chasing yield. And for that, I mean, the way I look at it, and Ivan might feel differently is it's -- what's our alternative. We're not going to pay more or risk cannibalizing the pricing of our entire deposit portfolio if we can just simply go and replace some of that funding at the Federal Home Loan Bank.

Yes. I would agree with that. I think on the deposit side, the tide shifted in Q2 from my perspective, right, from an environment where I think if you go back 6 months, I think there was expectations that rates would continue to decline. That was what was originally within our plan at the beginning of the year. You go back to 6 months ago, I think it was kind of like a slack tide is what I would call it. And then you start to see, I think, in Q2, an expectation for -- we'll see what happens tomorrow, but rising interest rates. And that's put pressure on funding costs across the entirety of the industry.

We see it in our marginal funding costs. And I think what that's required is for us to be very surgical in terms of how we decide to price deposits. And we price, in particular, CDs, money market. The benefit that we have, I think, and what you saw from us in Q2 was continued decrease in the cost of interest-bearing deposits. I think we've signaled that will be hard to replicate in Q3.

I think that if anything, we'll probably be flat or potentially up a little bit because we've had to really be thoughtful around where you place deposit pricing so that our bankers are out there competing for deposits, and we're not tying both hands behind their backs, but at the same time, making sure that we're not making irrational pricing decisions that are going to be a drag on that margin. So it's required a really thoughtful surgical approach to that.

Great. There's several transactions and leadership changes have occurred across California and other Western markets over the last year. How much opportunity do periods of disruption create for Columbia? And where are you seeing the greatest stability to win customers, recruit talent or gain market share?

Yes. Specific to California, that's -- that was one of the appealing things for us. I mean, one of many appealing things for us with the Pac Premier acquisition was what it did for us in Southern California and the fact that, that market is fragmented. There's not a clear dominant bank in there. We've seen opportunities from some of the acquisitions that have happened over the past, call it, 3 to 5 years, attracted some great talent in that market that has really built some nice portfolios on both sides of the balance sheet.

We see it really throughout our entire footprint in terms of our ability to just be in a space that's different. We're kind of in a sweet spot when you just think about our market position. And the money center banks don't always want to come down to the level that our business customers are at. The smaller banks, they can't -- they don't have the balance sheet or the products or both to serve those customers. And there's only 4 of us west of the Rockies that are between that $50 billion and $100 billion mark. And 2 of them have very different business models from us.

So that's appealing to customers. It's appealing to talent. When I think about our expansion markets of Colorado, Utah, Arizona and the folks that have joined us in those markets are phenomenal. The -- our legacy markets in the Northwest, likewise, we've attracted talent from, you could pretty much name any top 10 bank, and we've hired great performers that do really well in our system. So super excited about what we're seeing on the talent front. We don't take it for granted. I've said before that we used to -- our people used to always get recruited by smaller banks. Now we see some of our junior bankers and others that are getting recruited by the large banks as well.

So part of that's our market position, part of it's the kind of people that we have. But we haven't lost any of what I consider our top talent to anybody either upstream or downstream. So that's been helpful, and it's also opened up doors in terms of bringing new customers into the bank.

With that backdrop, does that help accelerate that relationship -- full relationship banking model? Are you seeing sort of a better uptick in some of those new expansion markets that you've talked about or when you're bringing in a new a new experienced banker?

Absolutely. Yes, especially the ones that are coming from the bigger banks because they're used to having a lot of different products and services and bringing the full assortment of those to the customer and really kind of wrapping our arms around that relationship, and they're not shy about asking for it. So that's where we've seen them be really successful. And we're not lacking for any products. Technology, we're never going to be on the cutting edge, but all of our tech platforms are contemporary.

So the bankers know they can go in and compete and they do with anybody. And so that's helped in terms of kind of upskilling even some of our folks that have been with us for a long time. And now they see new people come in, a different way of doing it, and it causes everybody to just kind of step up their game.

Great. Over the last year, you've made a conscious decision to shrink lower return assets while improving profitability. Where would you say Columbia is today in that balance sheet optimization process? And how much of the benefit is ahead of you?

I'll start, and then I'll step back and Ivan can give you some details on the numbers. But I think what we're proving out, and we'll continue to do that over the next year is that we can have a smaller balance sheet, be more profitable and have less risk on that balance sheet. And that's why we've been remixing it and why we're committed to continuing to do so. But -- do you want to talk about kind of what that looks like in the coming year?

Yes. And maybe what I'll do is I'll start kind of look backward for a minute and then talk about kind of what that looks like going forward because I think it's insightful to kind of think about the journey we've been on. And so for those in the room that maybe are not as familiar with our story, I think the question is largely in relation to a component of about 15% of our loan portfolio that we deem to be transactional in nature, right? These are credit relationships that are on our balance sheet from legacy either Umpqua or PPBI lending where there's really no other relationship that we have.

And like I said, that represents about $7 billion of total loans, about 15% that's been declining at a pace of about $1 billion, just over $1 billion per year in terms of volume. If you look back about a year ago, what that's allowed us to do is a handful of things. In the last year, we've added 20 basis points to net interest margin. We've continued to see that step-by-step continue to increase over time. We've taken the component of our funding that's reliant upon wholesale down by over 20% at the same period of time.

We've added about 10 basis points from Q2 to Q2 in terms of the return profile on an ROAA basis. And we've actually despite putting up a very substantial share buyback program in the last year, we've actually seen our total capital levels increase a little bit from summer of last year to summer of this year. And so I think that optimization has been really a positive factor in terms of the return profile of the bank.

You're absolutely right. What it's done is slightly de-leverage the bank and we've taken loans down slightly, and we've signaled for this quarter that will likely be flat to slightly down. As you look forward, I think the pace of continued runoff of that portfolio has been measured, which selfishly from my perspective in terms of managing that balance sheet, I like. We've fielded questions over the last year around, "Hey, why don't you sell a component of it now, reposition your balance sheet?"

For us that doesn't make financial sense for our share. Instead what we're able to do is see that continue to measure down and over the next year, we've got a significant portion of that $7 billion portfolio that will either reprice or mature. And so when these ARM products hit the repricing date, they kind of jump back to either market-rate loans and are no longer financial drag to us or the reprice else. Either way, and we can leverage that kind of freed up capital to reinvest. So I think it's been a positive effect in terms of optimizing the earning asset side of our balance sheet. And we expect that to continue.

At some point, that pace will slow down likely kind of in Q2 of next year. We'll see the pace of kind of the repricing behaviors begin to slow down in that portfolio, and there will be a longer tail to it over several years. But at that point, it will be a smaller portion of our balance sheet and likely will become less of a headwind from a growth perspective. But like I said, in the meantime, we'll continue that optimization journey we've been on and expect that we will continue to have favorable financial effects for us.

I think associated with that, investors have become increasingly focused on the path to a sustainable 4-plus percent interest margin. As you think about the next several quarters, what are the biggest drivers of that interest margin expansion, and what could cause that timeline to change?

Yes. So this is a quarter where we've signaled we'll achieve that number and likely surpass it and so we feel good about that. The first part of that really is what we just talked about, the continued remixing of our loan portfolio and we just talked about it, but essentially that book is sitting at about 4.14% coupon today. As those loans reprice, that's a powerful factor for us. We're seeing, like I mentioned earlier, some of that reprice and stay on the balance sheet, some of that prepay and go off our balance sheet, go elsewhere.

At the same time, we're replacing that with core relationship-based lending, which in addition to having a higher coupon, higher total return profile, also allows us to bring in deposits, bring in the ancillary fee income, which has been growing really nicely from that perspective.

The other side of it is just the funding side and we're not a bank that is going to put up a 10% growth in core deposits. It really is, from my perspective, core commercial banking up and down every single market that we're in, from small business to medium-sized businesses to increasingly larger commercial enterprises.

When that's humming, I think that's kind of a 2%, 3%, 4% total deposit growth rate, which some folks might not get excited about. I do, because I can see how that compounds over time, and we can see the effects. It's hard to measure in any particular quarter, especially because as you think about the various businesses that we serve, there's seasonality factors for many of the businesses, ebbs and flows in certain business lines that we support.

It's hard to measure progress in any given month or any given quarter, but when you look back and you see the progress that you've made in terms of the ability to continue to optimize your funding stack, that's where from my seat, it gets really exciting to see that continue to grow over time. And so those are the two factors that really I think we look to. I think the business model at its core, as we achieve the target balance sheet mix that we want, should be operating kind of in that 4-plus percent range. That's kind of what our projections are telling us, and that's what we're seeing in the business as well.

Great. On the loan growth side, clearly, you're being impacted by the runoff of the loans that you talked about. When you look at where you're actually seeing production, what are some of the dynamics for new loan production and new loan pipelines? Where are you seeing the most attractive opportunities for growth today sort of across the franchise?

Well, certainly, we're seeing it in some of our specialty verticals, things like our tribal banking group, our franchise finance, some of those areas continue to be very strong. But broadly, it's across all of our markets and all of our different verticals. And I was in Boise market last week and talking with the team there, and they've got so many deals in the works. It was shocking to me the number of things that they have going and the variety of them.

So it's not any one thing. And I'll go back to -- I think it's our position in the market where we're just able to do things quicker, differently or better depending on if it's an upstream or downstream competitor. And the other side of it is, and this is something that we work really hard to achieve, and we don't take it for granted is we have customers that refer their vendors and their business partners to us. And so that also is additive.

If -- so I'll just give you an example. In Oregon, we have a customer that just completed a new manufacturing facility. And they're obviously very pleased with our team and the service that we've given them. And they referred the contractor that built their facility to them. And it's a nice couple of hundred million dollar revenue company that was with a top 10 bank and was just not satisfied. So it's not any one thing. And I'll go back to -- we always talk about what are the activities that we're doing. And I've said this for many, many years, even go back to when I was in Ivan's seat as the CFO.

We have periods of time where the types of businesses that we bank, they sell, they go through generational transitions and things of that nature. So the totals can ebb and flow. But I always say, what are our activities? Are bankers doing the right things? And we've been running the Columbia model ever since the Umpqua acquisition. It wasn't necessarily readily apparent, I don't think, in the first year or 1.5 years. But if you look back now, it's been 3.5 years, a little over 3.5 years.

If you look back at where we've had growth in the balance sheet, it's been in those core commercial type products. The totals are starting to show up, and you see it translate into the increases that we've had in fee income growth and things of that nature. So it's -- I can't just pinpoint it to any particular area, any particular geography. And I know when you look at us from the outside and you look at peer banks, some of them that have put up larger growth numbers have gone all in on one sector or one vertical. And then if it's disclosable, you can see that.

For us, it's just a continuation of doing the things, serving the market, whatever that market is. If it's a no stoplight town in Eastern Oregon or if it's downtown L.A., they have very different opportunities, and we want to make sure that we're capturing whatever that market provides for an opportunity.

I guess California feels like it's one of the most attractive long-term opportunities for Columbia. As you look at that market today, do you feel you have the positioning you need there to gain market share while maintaining that discipline you've talked about?

I feel like we have the infrastructure now. That was the thing that we lacked. Our team prior to Pac Premier punched way above its weight in the Southern California market. We think about California in its entirety, we have roughly the same number of offices there as we do in Oregon and as we do in Washington. So about 330 offices between those 3 states. We look at what we have on in terms of deposits and loans, Southern California is our biggest market now, and we've just scratched the surface.

So I still remain very optimistic, especially now that we're -- we just had the 1-year anniversary of closing the Pac Premier deal, those bankers that joined us through that continue to impress me with how they've embraced having a bigger balance sheet, more products, more services. Their cross-business line referral numbers are outstanding. And again, it's such a deep market that we've just scratched the surface.

One thing that keeps coming up is your ability to attract experienced bankers. What are those people seeing at Columbia today that makes them want to join wherever they're coming from?

I think it's a combination of our culture. They know or maybe in previous employers have worked with some of our folks that have joined us and are very successful. So we have a flat org structure, access to executive management. I have an open door policy. I'm sure we hired a new employee yesterday, it was Monday. That person can call, e-mail, come into my office if I'm there, ask me anything they want. And I think that's refreshing is that we all show up, we roll up our sleeves and we're working managers and colleagues.

And so that seems to resonate. And then our ability to execute. High performers, what they care about is if they've achieved that trusted adviser status with their customers, they care about being able to execute and deliver on that. And in our model, we've got a track record of people being able to do that.

We spoke about loan growth and margin, but fee income businesses have become an increasingly larger contributor. How are treasury management, cards, wealth management and other fee businesses changing the economics of a customer relationship?

Yes, I'm happy to start. And you're spot on, right? I think Clint talked about it earlier, but one of the things that we've seen is in the data is that we continue to deepen customer relationships, in particular, as you see some of these noncore kind of transactional borrowers continue to migrate off of our balance sheet. We continue to deepen in those areas, right? Treasury management services, card services, merchant, swap syndications, wealth management.

And right now, one of the things that we focus a lot on is continued growth in some of those metrics. The one that I like to focus on is noninterest revenue as a percentage of total average assets because it's been pointed out to us before that, boy, of the total revenue pie, fee income is a relatively small portion. And I always say, "Well, yes, but that's because our net interest margin is so strong, right?" If I wanted to grow that size of the pie, the best thing I could do is drop down to a 370 margin, but I don't think that's a good outcome for us. The way that I like to measure it is a function of kind of the business model.

And as we continue to transition the balance sheet from where it's been to where I think we've articulated it's going, which is more C&I centric, more commercial centric, that measure will continue to increase. And we've also seen that. If you go back to Q2 of last year, we had about 45 basis points of average assets in terms of fee-based revenues. Right now, we're up to about 55 basis points. So it continues to deepen and grow.

It's very, very difficult when you look at the pricing model and whether it's -- I don't care whose model you use, it doesn't really matter if it's on a reg cap basis, if you allocate 10% or 12% if you don't get any other services, if it is purely a lending relationship with no deposits and no ancillary fee services, it's very difficult to get to a 10%, 12%, 15% return on relationship. You really do need to have that full relationship in order to kind of make the math work from that perspective. And so that's what we look to.

We don't always get every single piece of the business nor do we necessarily expect to. But over time, that's the goal, right, is to continue to get your foot in the door with some of these commercial relationships, bring in those deposits, show that you can execute to the comments Clint made earlier. And then as you do that, more often than not, we see kind of these wins come to the table. And that's been fun, and that's exciting to see.

And I'm just the finance guy, so I'm rooting from the sidelines sometimes, but I would like to help participate in the celebration when they do kind of bring those full relationships in because certainly makes my job easier as those are the relationships that drive strong return profile.

Wealth management is an area we've heard a lot of banks talking about emphasizing and growing and trying to tap the existing customer base. What's driven your success there? And how much opportunity remains within the existing commercial customer base to expand?

Yes. Our model is actually pretty simple. It's -- I'd say we're a Main Street commercial bank. So we lead with commercial products. We've always had a private bank wealth management division because we want to bank the owners and executives of those companies that we have the commercial relationship with. And then our retail network is largely there to support the needs of those businesses, those owners and executives. And then hopefully, the employees of those companies will choose to bank with us.

So it's not a wide -- cast a wide net consumer type model that we've run. So for the 33 years that the company has been in existence, that's always been our approach. I think we can get better. I'm never satisfied. I look at the progress that we're making, but I think that we could do more across our existing customer base. I think where you're seeing the growth in that area is a result of the growth of the company in some of these other markets, the talent that we've been able to attract, and we talked about it on the commercial side, it holds true on the wealth side.

And then just in some of those markets like Southern California, there's just an enormous amount of wealth. And as we've leaned into that market, we're seeing the results, and that's where you're seeing some of that growth come from.

And maybe shifting over to credit. Credit remains remarkably stable despite a period of elevated rates. Where are you spending the most time today? And where have your concerns changed over the past few quarters?

Yes. Credit remains really, really good and strong. Frank, our Chief Credit Officer, is still very relaxed. Where he has spent and his team where they've spent the bulk of their time this year is just really analyzing our ag portfolio. I think ag gets a lot of publicity because it's cyclical. Ours is very diversified. There's -- it's anything from cattle to row crops to nuts to nursery stock to grass seed. I mean it really runs whatever can be grown in our footprint is -- makes up the portfolio. And even at that, they're navigating things pretty well, and some are doing exceptionally well.

I was speaking with a cattle rancher a few weeks ago, and he was excited and in disbelief at how much he just sold his steers for. And so where we do have an issue, I think we're -- I think ag -- our nonperforming ag loans are about 3.8%. 1.8% is the one-off deal that we previously disclosed in earlier this year. So all in all, it still remains very strong. And we do some things to minimize the risk in that book. We participate in Farmer Mac programs, some USDA programs that help to derisk that as well.

Maybe looking at AI, which is a theme we're talking about clearly this year. You've discussed AI-enabled relationship management tools, customer analytics, operating efficiency initiatives and productivity improvements. Where are you seeing the most tangible benefits today and which applications have the most potential to create shareholder value over the next few years?

Yes. Ivan and I are sitting up here, and we're going to not do the answer near the justice that Drew Anderson, our Chief Administrative Officer, who's with us and absolutely lives this stuff each and every day. So we're going to put him on the spot and ask him to come up. You'll get a much more robust detailed answer.

Great. Thanks, Drew.

Thanks, Jared. So AI at Columbia Banking System is really kind of broken out into a couple of categories. One that we've really found a lot of success in is in our call center. So we put about 3 different AI applications in front of our call center agents and our customers. And what we've seen over the last year is we've actually flipped. So when a client sends a message, now it's 7:1 agent response versus human response. And the reason we're seeing that change is the agent is getting a lot better. So certain things like what's your routing number? Where is your closest branch? What's your hours of the branching operations? The agent just takes care of that. And then the super complicated, "Hey, I have fraud on my account, what do I do?" That's where the human steps in.

So we've seen a tremendous productivity increase in our call center. And the point I would point you to, Jared, is we added 30% more customers with the Pac Premier acquisition, but our call center staff stayed flat. And that's a lot of this AI work. The other thing we're seeing a lot of success in is our fraud capabilities. So we have some really nice fraud tools. We layer on our own internal kind of AI models, self-developed internally on top of those. And now we're catching more fraud that would have bypassed those models.

So between our call center, between our fraud, those are the early wins. I think what we're going to see here in the next couple of quarters is some work on the commercial lending process and speeding that up. Like Clint said, we try to be very, very quick in our markets, and we feel like there's a tremendous opportunity to leverage AI in the process, not to decide the credit, yes or no, but just speed up the analytics, the reporting, the decision-making.

I guess maybe at the last few minutes here, talk a little bit about capital and M&A. You're continuing to generate excess capital while keeping that loan growth intentionally flat as we discussed. How are you thinking about the dynamics of buybacks and capital targets? And then as you mentioned, it's been a year since the close of PPBI. How are you thinking about M&A going forward from here as well?

Yes. I'll tackle the M&A question, and then Ivan can speak to what we're doing on the capital front. I can't help myself. I have to say one thing on capital. Last year, when we announced the $700 million buyback program, the first question we got was, "Well, do you plan to use it all?" And it's like, well, yes, that's why we announced it. And so as that's winding down, Ivan can update you where we're at. From an M&A perspective, there was something last week or the week before in S&P on M&A, and it was a little bit out of context.

So at a forum a few weeks ago, I was asked a hypothetical question about M&A. Like what would -- if you ever did M&A again, what would be the smallest thing you'd look at? And then what on the top end. And so I said, "Jeez, I can't imagine anything under $3 billion that would really move the needle or do anything." And then just looking at our marketplace and where we're interested, I don't really see anything that's a fit for us over $10 billion if we're ever to do M&A again. Well I think it kind of got printed as that's our range, that's what we're seeking out. The phone still rings. I think we're still viewed as a great strategic partner option.

So there's nothing that's been announced in our marketplace that we didn't know was coming, that we didn't have an opportunity to say, not a good fit for us. And so it's not a priority. I think that some of the things we're working on internally are making us better and will continue to allow us to take market share organically. And that work is not done. So that's where our focus is. If we ever do reenter the M&A space, it will be something that has to absolutely be additive to our core deposit base.

We're not going to do anything that doesn't -- that weakens that core deposit base. And then we'd have to look from there as to, okay, what's the additional strategic rationale. But -- and we've worked hard these last 5 years integrating and transforming our company. Our bankers are having fun. We're having fun and we can still get better. We don't need to do anything from an M&A front.

On the capital front, it's a great question. So in the last -- it was 11 months ago, we announced a $700 million share authorization and signaled that, that is our intent, right, is to leverage that authorization to kind of return capital to shareholders. Over the course of a year with that in place, in addition to a very healthy dividend level, we'll have opportunity to return over $1.1 billion of total capital to shareholders. And what we've essentially seen is that our capital levels from a risk-based capital perspective have barely moved, right?

If you go back to the last 3, 4 quarters, they've been right at that kind of 13.5% level, which frankly speaks to the power of the earnings profile of the company, right, that you're able to do that. We repurchased $100 million of shares in Q4 of last year after announcing the program, $200 million volume in Q1 and Q2 and would expect a similar level here in Q3 as we wrap up this year. And then we'll come back to the market here with an update as part of our October earnings call with regard to the continuation of the program and the size and scale of that.

The other thing that we've been looking at and actively taking action on is the mix of our capital. So we've talked about an opportunity to look at not just kind of the share repurchase program, but also our Tier 2 capital base, which is historically and as you can see in our financials been trust preferred securities. And those are expensive, they're inefficient, and they'll begin to lose their capital treatment here in the next -- starting later this year. And so we're working through a program to essentially replace that with sub debt offering that we disclosed yesterday morning.

So we're excited about that. That will be kind of a more stable, more efficient and more cost-effective way of providing that Tier 2 capital base. And so that's something we've been working through this quarter and excited to get that done. And you won't see a significant movement in our total capital levels with regard to that, but we're excited to have that be something that we're able to execute on here in the third quarter as well.

And that sub debt offering, just to be clear, is intended to essentially upstream capital to CBSI level and redeem some of the trust preferred securities. And so we'll be doing that here over the next handful of weeks and months.

Great. Well with that, thank you very much for joining.

Thank you.

Thanks.

Hello, and welcome to Columbia Banking System's Second Quarter 2026 Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jacque Bohlen, Investor Relations Director, to begin the call. You may begin.

Thank you. Good afternoon, everyone. Thank you for joining us as we review our second quarter results. The earnings release and corresponding presentation are available on our website at Columbia bankingsystem.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 will now hand the call over to Columbia's Chairman, Chief Executive Officer and President, Clinton Stein.

Thank you, Jacque. Good afternoon, everyone. Our second quarter results once again underscore the same core priorities we have previously outlined: delivering consistent, repeatable results, reshaping the balance sheet to improve long-term profitability and returning excess capital to shareholders. Quarter reflects disciplined execution across the company despite a dynamic operating environment.

Our bankers generated solid commercial loan production and net growth supported by healthy business activity and the continued addition of experienced talent. While commercial loan growth offset intentional runoff in the transactional book, total loans declined during the second quarter due to elevated CRE payoff activity, driven in part by competitive pricing pressure. I've stated many times that Columbia does not chase growth for the sake of growth. We are seeing pricing and structures in the market that we believe are irrational and we will not meet them.

We will compete aggressively for high-quality relationships that meet our return objectives but we will not destroy shareholder value by sacrificing long-term returns to simply add loan totals. The same discipline applies to deposits. Our team continues to protect the quality of our industry-leading core deposit franchise by demonstrating the value Columbia brings to customer relationships beyond price.

Our deposit campaigns, which Chris will review in greater detail, help offset seasonal outflows in April related to tax payments. Importantly, across the organization, we maintained our pricing discipline in an increasingly competitive environment, resulting in a decline in deposit costs from the prior quarter. Our discipline also extends to expense management.

I'm pleased to report that we exceeded the cost saving target we laid out last year when we announced the Pac Premier acquisition. In addition, we were materially under the merger-related deal cost estimate we disclosed at announcement of the transaction. I want to thank our integration team one last time for their flawless execution on this acquisition.

With the Pac Premier integration now complete, we are continuing to identify targeted efficiency opportunities across the company. These small adjustments help fund continued franchise investment including the addition of new locations and talent.

The operating environment is not without its challenges though, but I'm as optimistic as ever for our future. We operate with a fortress balance sheet today. It takes discipline, but we believe the repositioning actions we are taking will continue to make our balance sheet structurally stronger and improve the quality and consistency of our earnings profile over time. This long-term improvement is enhanced by our growing stream of quality fee income.

Our balance sheet optimization work also contributes to our capital return objectives. Given our current capital position, and bullish forward outlook, we returned over $300 million to shareholders during the quarter through our regular dividend and the repurchase of our outstanding common shares. We continue to believe the best investment we can make at this time is in the stock of our own company. I'll now turn the call over to Ivan.

Thank you, Clint, and good afternoon, everyone. As Clint highlighted, our second quarter results reflect continued execution of our strategic priorities.

Turning to Slide 11. We reported EPS of $0.73 and operating EPS of $0.76 for the second quarter. On an operating basis, which excludes merger expenses and other items detailed in our non-GAAP disclosure, second quarter pre-provision net revenue and operating net income increased 30% and 36%, respectively, compared to the second quarter of 2025 due to the addition of Pacific Premier, continued progress on our balance sheet optimization targets and disciplined expense management.

Turning to Slide 12. Average earning assets were $60.3 billion during the second quarter, coming in at the midpoint of the range I outlined in April, as continued balance sheet optimization and elevated CRE payoffs contributed to modest contraction relative to the prior quarter. We continue to actively manage our funding base, reducing overall wholesale funding, inclusive of public wholesale balances while optimizing the mix towards lower cost sources.

Results were largely as anticipated and CRE payoffs contributed to the remix of our loan portfolio into commercial loans, which inclusive of owner-occupied commercial real estate now represent 42% of the portfolio.

Slide 13 outlines contributors to the sequential quarter change in net interest margin. Net interest margin was 3.93% for the second quarter. And when we adjust for 3 basis point impact of onetime credit-related interest reversals as detailed on our slide, our NIM was in line with Q1. Our balance sheet optimization strategy has driven meaningful net interest margin expansion over the past year. This quarter, however, the yield on investment securities was lower than expected due to the impact of higher interest rates on security portfolio accounting adjustments. Despite that headwind, we continue to expect the NIM to move beyond 4% this year as we have previously articulated. Our latest interest rate modeling continues to show that our balance sheet remains neutrally positioned to rates as Slide 14 details providing earnings insulation, whether interest rates rise or fall.

Noninterest income in the second quarter was $88 million on a GAAP basis and $91 million on an operating basis as detailed on Slide 15, above our guided $80 million to $85 million range, even when adjusting for a unique $3 million BOLI gain. The teams had an exceptional quarter across businesses, and we expect noninterest revenue in the mid-$80 million range for Q3.

Slide 16 outlines noninterest expense, which was $366 million on an operating basis. Excluding intangible amortization of $38 million, the second quarter's $328 million run rate was below our guided range due to Pacific Premier synergy outperformance, continued expense management discipline on our core franchise and the timing of strategic reinvestment into the franchise. We are now essentially complete with the PPBI related cost synergies with our final results exceeding the target by $5 million due to additional savings we were able to execute upon during the quarter.

Excluding CDI amortization, which will trend down slightly each quarter, we expect noninterest expense in the $330 million to $335 million range in the third quarter.

Moving on to Slide 17. Provision expense was $27 million for the second quarter, reflecting loan portfolio runoff, credit migration trends and modest changes in the economic forecast used in our credit models. Credit metrics remained stable and healthy.

Slide 18 details our allowance for credit losses by portfolio with coverage of total loans at 1.01% at quarter end and 1.26% when the credit discount on acquired loans is incorporated.

Turning to capital. Slide 19 highlights our regulatory capital ratios at quarter end. Our CET1 and total risk-based ratios declined very slightly to 11.6% and 13.4%, respectively, as our regular dividend and robust buyback activity was largely offset by strong capital generation and balance sheet optimization impacts during the quarter. During the second quarter, as Clint indicated, we repurchased 6.6 million common shares, returning approximately $200 million to our shareholders through our share repurchase program.

We continue to have approximately $530 million of excess capital above our long-term target ratios as of June 30 and $200 million remains in our current repurchase authorization program. Tangible book value increased 1% during the quarter to $19.22 despite this significant return. We expect share repurchases to remain in the $150 million to $200 million range for the third quarter and plan to discuss our future repurchase authorization plans during our next earnings call this fall as the current program nears its completion.

In addition to our share repurchase program, we continue to evaluate potential actions we can take to further optimize the entire capital stack. Overall, we are very pleased with the financial results for the quarter, driving over 1.3% in ROAA and 16% in ROTCE. As Clint noted, we remain focused on preserving the quality of our earnings while improving returns over time.

I will now hand the call over to Chris.

Thank you, Ivan. Our bankers had another strong quarter of business generation as new loan origination volume of $1.3 billion was in line with last quarter's strong production. Looking specifically at Columbia's commercial loan portfolio, inclusive of owner-occupied commercial real estate, origination volume was up 9% from the prior quarter driving a 5% increase in commercial loans on an annualized basis.

Commercial origination volume was up 49% from the year ago quarter contributing to a continued remix of our loan portfolio towards higher return, the relationship-based lending as transactional loan balances continue to decline. As Clint and Ivan have noted, elevated payoffs in our nonowner-occupied CRE portfolio drove net loan contraction during the quarter to $47.2 billion from $47.7 billion as of March 31. We remain focused on relationship-based production that supports the quality of our balance sheet and consistency of earnings.

Turning to deposits. Intentional reductions in wholesale public and broker deposits drove roughly 2/3 of the balance decline between March 31 and June 30. Customer deposit contraction occurred early in the quarter due to seasonal tax payments as balances stabilized in May and June and have begun to expand seasonally to date in July.

Our small business and retail deposit campaigns continue to bring new customers and deposits to Colombia. These campaigns have generated new accounts with nearly $1.5 billion year-to-date in deposits through July. The foundational strength of these campaigns is built on banker engagement and customer outreach not promotional pricing. Despite continued and renewed competition for deposits, the spot cost of our interest-bearing deposits declined 4 basis points from March 31 to 1.94 as of June 30.

We continue to invest in our franchise during the second quarter, opening our second branch in Colorado and establishing a financial hub in Las Vegas. We have two more branch openings planned in the coming months, and we also made strategic hires across the footprint, enhancing our capabilities in these newer markets with in-market veteran bankers and needed support for business development activities.

Our collaborative cross-functional team model is winning business and our balanced approach to growth is contributing to our expanding stream of customer fee income, which noticeably increased during the first quarter -- from the first quarter. As new customer acquisition and a seasonal uptick in activity contributed to strong growth across all product lines, including treasury management, commercial and merchant cards and our broad wealth management platform.

Our teams are doing a fantastic job as they remain focused on generating new relationship-based business. I'll now hand the call back to Clint.

Thanks, Chris. I want to thank our entire team for their dedication and disciplined execution, which helped deliver our tenth consecutive quarter of stable and predictable financial performance. By staying focused on relationship-based growth maintaining pricing discipline and continuing to reshape the balance sheet, we are strengthening the quality and consistency of Columbia's earnings profile.

We believe these actions position us to perform better through economic and interest rate cycles. Resulting in long-term value creation for our shareholders. This concludes our prepared remarks. Chris, Tory, Ivan and Frank are with me, and we're happy to take your questions now. Didi, please open the call for Q&A.

[Operator Instructions]

And our first question comes from Jeff Rulis of D.A. Davidson.

I wanted to maybe just trying to unpack the loan. So net loans down a little over $500 million. Is there a way to kind of talk about the dollar figure of what was intentional -- what was -- what you grew, Clint, I think you opened with the intentional growth was exceeded intentional runoff. And then CRE sort of unwanted payoffs. Do you have the dollar figures at that roughly just to kind of see the numbers?

Yes, I'll start and then kind of look to others to add some color commentary. This is Ivan. So really, the way I would break it down really is into three component parts as we've thought about it internally. In terms of the intentional component of that, we've got our disclosure slide in the back of the deck around our transactional portfolio. That book declined by roughly $270 million on the quarter.

So we're still continuing to see paydown of the transactional portfolio kind of in the high single-digit to low double-digit range month-on-month. And really, we were anticipating to see a little bit of a pickup in the payoff pace of that portfolio, and we did see a little bit. I think in Q1, that was in the ballpark of $230 million. So that's the transactional side of the equation, where most of the growth was focused was in the C&I book. And when we talk about that, we're really talking about $20 billion of combined C&I and owner-occupied commercial real estate, which is what our plan has been focused on growing.

We grew that just around $200 million or slightly more than $250 million over the course of the quarter which is -- adds on top of another positive quarter that we had in Q1 in that particular area. And then the piece that is the third factor there would be the commercial real estate, the core commercial real estate portfolio and that's where we're seeing significant competition emerge. It feels like it's been a bit of a shift in the tides there. We've seen some elevated payoffs in the commercial real estate portfolio. That would be the third piece of it, and maybe I'll hand it to Tory to add some color commentary on the CRE book.

Yes, sure. This is Tory. So I'm just a little bit on the CRE part of it. These are some of the payoffs have been -- I mean, it's getting pretty frothy out there. And as Clint said early on, we're not going to change the way we underwrite or take substantial additional risk on the real estate book, and we're not going to change price or drive price down to the floor. It just doesn't make sense for us as we kind of run the bank.

So there's some business that just got refinanced out of the company out of the real estate group to other banks. It's getting highly, highly competitive. We continue to have relationships even with the folks that paid off of a property or two and when someplace else, they still bank with us. And so -- and I've seen some growth in our real estate pipeline today loan structures that we were used to having and doing and prices that are fit kind of what we're looking for. So it's kind of -- I think a little bit of a blip in the quarter, I don't really anticipate to be the same in Q3. We're working hard to shore it up as best as we can.

That's great. And maybe just one follow-on. Ivan, to that slide on the next 12 months of intentional you got $3 billion to go, I suppose, or maturing. I guess if you could hazard the rest of the second half of '26, could we just assume maybe half of that $1.5 billion is what you'd target for what would be coming off out of the transactional book. Is that fair?

Yes. Looking back over the past 3 quarters, when we originally put this together after the PPBI close, we've seen that portfolio declined from around $8.1 billion to the $7.3 billion that you see there. So roughly $0.75 billion over 3 quarters, that's 9%. So it's kind of that 12%, 13% run rate. Our presumption is that we'll kind of be in that similar range for the next few quarters, kind of call it, $0.25 billion or slightly higher than that in terms of the reductions out of that portfolio.

Obviously, that depends a lot, right? I think we've seen a lot of volatility in interest rates over the course of the last few months. And so it depends on what happens back economically, but that's our current go-forward assumption regarding the pace of pay downs there.

The other thing that we pointed out in the past is we've got about $3 billion of this that will reprice and/or mature over the next 12 months and then the pace of that begins to slow down. So when you get out to kind of, call it, summer of 2027, that level of repricing and from a growth perspective headwind, begins to diminish modestly in summer of next year.

And our next question comes from David Chiaverini of Jefferies.

On the net interest margin, you previously were expecting to get over 4% at some point during the second quarter and then potentially for the full third quarter. You mentioned in your prepared comments that you would get to beyond 4% sometime this year. Can you talk through how we should think about 3Q and 4Q around that 4%?

Yes. Happy to provide a little bit of extra color commentary on that. And I'll go back to last quarter just to start. So you may recall, 90 days ago, we reported our Q1 NIM was 3.96%, so slightly elevated from what we'd anticipated in the quarter, but generally in the range a little noisier this quarter than we had hoped from a net interest margin perspective. The printed number is 3.93%. But there are a few factors that I'd point to.

First, as I noted earlier, was at $4 million or 3 basis point headwind associated with onetime credit-related interest income reversals and pro forma for that, we are essentially flat to the prior quarter. The other one that I didn't explicitly talk about in the prepared remarks, but you can see in our walk is that we also saw a reduction in the recognized accounting yield on our investment portfolio. And that's really a function of higher macro interest rates resulting in slower anticipated prepayment speeds on our mortgage-backed and CMO securities portfolios. And because we have those at significant discounts to par, we were accreting slightly less discount into the in-quarter results.

And you can see in the walk there that, that's basically a 4 basis point headwind in Q2 that we had not fully anticipated. What I would say around that securities portfolio is there's the accounting recognition element and then the economic realities of it. And from an economic perspective, we're very pleased with where that portfolio stands. The coupon in that book, what we're purchasing from a front book basis is about 75 or 80 basis points higher than the back book.

And so while we will always be subject to some of the implicit volatility in the accounting recognition there. We're overall pretty satisfied with where that's going over the course of several quarters. As we turn the page towards Q3, we do expect that we're going to be getting up to and beyond that 4% net interest margin. So that's a pretty good barometer for Q3 the factors that we're looking for are the same factors that we've been talking about before, the continued remix of our loan portfolio overall, the repricing opportunity that we do have -- as you heard from us earlier, it's a slightly smaller balance sheet, but we think that over time, that does unlock opportunities, and we will continue to see optimization occur there. So those would be my comments regarding how we're thinking about the margin going forward.

Great. Very helpful. And then on deposit costs, good to see the spot deposit costs coming down in the second quarter. Is there much opportunity left? How should we think about deposit costs going forward?

I'll give -- this is Ivan again. I'll give my perspective and then I'll let Chris weigh in -- and so you're right. I was very pleased with where we landed. Quarter-on-quarter, we saw another 8 basis point reduction in the cost of our deposits overall. You can see on our slide that the down beta now reports nearly 60%, although I would temper expectations there, we continue to believe that 50% is a pretty fair beta as you're modeling us out going forward. We have seen, I think, a step function shift here in the last 60 days in our industry regarding the cost of liquidity.

We've seen competitors begin to be more aggressive regarding offers in many of our different markets, both in the form of liquid money market as well as CDs. And so I think that there's a bit of an industry-wide expectation that with rates likely more likely to go up than down here over the course of the next handful of months, that will translate into increased pricing pressure.

So my view is we probably have gotten to the point where it begins to bottom out in terms of the overall cost. But we've got a lot going on to continue to maintain, as we talked about earlier, kind of our industry-leading deposit franchise in that regard. And I'll hand it over to Chris for more color commentary.

Yes, I'd just add in there, the competition aspect of it is dramatically increased rack rates that are out in the market. We're looking at monitoring it basically on a daily basis. And as we start looking down the road of where CDs are maturing, what money markets you're paying. You got competitors who are up in over 4% again. The fact that with that loan rates really haven't gone up and that's almost a no win battle there.

I look at the CDs and the maturing and you see there's probably some upward pressure on the overall rate on those. Money markets is the same. But again, we're competing where we can. We're looking at relationships and trying to hold the line steady. I'd agree with Ivan that we could be in a trough right now until the market itself retreats back -- if it doesn't, then you could potentially start seeing some deposit costs that could start to trickle up a little bit.

Our next question comes from David Feaster of Raymond James.

You guys -- we've talked a lot about intensifying competition, especially you talked about pricing on CRE loans. I guess conversely, does that give you some optionality as well, like to play into this, just given irrational pricing expectations, that create opportunity for you to optimize the balance sheet faster, maybe sell some of these lower-yielding loans at less of a discount than you guys talked about previously. I know for a while, it didn't make sense, but curious, does that make sense today? Or are there any other balance sheet optimization strategies that you would consider today?

Yes. This is Ivan, David. It's a great question. We do continue to look at that every single quarter -- and the dynamics do shift a little bit. It is a competitive market in commercial real estate. So there has been increasing demand and I know you're likely seeing that in other peer Bank discussions as well and in HA data and other sources like that. We looked at it again this quarter. We continue to believe and feel that our best path forward is to continue on the 1 that we've been going down, which has quarter-on-quarter-on-quarter continue to allow us to remix I quoted a number that is one that we talked about.

We're excited that we've gone to and beyond the 40% of our loan portfolio that's in C&I in order to occupied. And so we continue to see that trickle through there. But in terms of selling any of this portfolio, we're going to continue to hold off on that at this point because it just doesn't make economic sense and wouldn't be accretive from a shareholder perspective.

Okay. That makes sense. And then maybe touching quickly on the hiring side. Obviously, there's been a decent amount of disruption across your footprint over the past couple months. Seemingly, you've had a lot of success attracting talent. I'm curious your appetite for hires today? Are there any markets or business lines that you're mostly focused on adding to at this point?

David, this is Tory. I'll start and then I'm sure Chris can jump in. I think I'd answer the last part of that question is we are always looking for really good talent that is accretive to the company in each and every market. So we built this franchise and it's been fun to watch the amount of talent that we've been able to secure, whether we're pursuing the talent or the talent is pursuing us, and we've seen a lot of the latter here recently.

Of note, I think we've hired some really good bankers, a couple of additional really good bankers in the Pacific Northwest, in Seattle area, in Portland. We hired some good bankers in Utah. We started a food franchise business that hired a couple of leaders and they've had some infill with a couple of outstanding bankers there. And as these bankers are coming in, they're doing an exceptional job producing results almost immediately. Just because they're so connected, whether it's an industry vertical and there's a specialization there or it's a geography-based play. They're very connected in their communities and they're bringing business right away. So it's been great to see, and we're continuing to look for them.

Yes. And David, on the wealth side. Previously, we've talked about we want to be full service in every market that we're in, and we're still looking for talent in those space. We've got a few people that have joined us just recently. -- few more in the hopper and always focused on the newer markets as well as far as deepening that into the markets of California and such. And it's not just on the customer-facing side where we're adding talent.

We had the opportunity to bring in a senior kind of regional Western, I guess, I guess you oversaw kind of most of the Western U.S. and credit from one of the big box banks. And we talk about getting better every day and continue to get more efficient in everything that we do and -- so we have people that are joining us that are helping us in things that you never hear about or never see, but remove friction for our bankers, the friction for our customers. So it's throughout the entire organization that we're adding that kind of talent.

That's great. If I could squeeze 1 quick 1 more in, maybe for you, Clint. I mean it's interesting. I talked to a lot of investors and the narrative has shifted. It was -- for a while, it was they can't grow earnings without growing the balance sheet. I think you guys have proved that obviously wrong. Today, one of the bigger pushbacks I get is now that the Pacific Premier deal is done you're going to go out and buy another bank.

I just wanted to get your thoughts on M&A here. And what's your appetite for another deal at this point with that deal done?

Well, it's a fair question. And I could be brief and say nothing has changed, but we have time, I'll go on a little bit. We will have 0 interest in the whole bank M&A. As I've said for the past 5 quarters, Pac Premier was the missing piece to the franchise that we envisioned. And as we look now at the markets we serve, the momentum that you've heard the team talk about that we have. Our de novo markets are de novo because there's really no way the West has been pretty much consolidated. I'd say, with the exception of Washington and California, and we have as much as we want or need.

We have top 5 market share in the Northwest. I think top 10 in California. So -- and we have a formula that works on the de novo markets. And as we see they hit their full stride and the momentum that they have -- last week, we held the grand opening for our Colorado Springs branch that just opened a few weeks ago. It was already at $80 million in deposits.

Our investments in Utah continue to generate meaningful new customers in the 3 locations that Pac Premier brought us in Arizona has pretty much built out the infrastructure that we need in that market to continue to grow and execute on our kind of Main Street commercial first business model. And I put it in my prepared remarks that continuing to buy back our own stock, I wholeheartedly believe that remains the single best investment that we can make and we intend to keep doing that for the foreseeable future.

I haven't talked about our current capital levels, and you all have projected where our profitability is going to be. And so you can see that barring some major reset in the macro environment that we can't control that we're going to have the capacity to keep that going. I would like to see our level of fee income increase. We screen low on that from a peer perspective. We talked about how competitive the deposit environment is and remains and some of the irrationality that we're seeing in the pricing there.

So I guess, if I have to give you something, I'd say it's possible that at some point, we might invest in a small bolt-on business if it helped us with our fee income or deposit generation capabilities, but certainly not interested in whole bank M&A or anything that would increase our share count. We've worked hard for the past 5 years. We've been in a state of planning, integrating and transforming our company. And now we're having fun again. And our people are having fun and we see the momentum that's out there. We don't want to disrupt that.

And our next question comes from Matthew Clark of Piper Sandler.

Just want to check in on the borrowings. At the end of the quarter, they were up -- looks like deposit growth has resumed from this second campaign, at least through mid-July. Fair to assume that will you'll be unwinding those borrowings here in short order? I assume that would help the margin?

Yes, absolutely. We do that daily, weekly -- we have continued to optimize our funding stack. And when I think about our wholesale funding FHLB, the brokered CD portfolio as well as a component of that kind of more wholesale public channel. And so we've continued to optimize that, and that it's been a helper overall in terms of the total cost of funding. You're right that on an ending basis, you add it all up and it's a little bit higher, but less than $200 million swing on an ending basis.

But we keep, in particular, the FHLB advances very short duration. And so we've got, I think, $1.7 billion plus of that, that advances mature any given month. So the answer is yes. We'll continue to optimize that as the core deposit business builds back up.

Got it. And then just on average earning assets, should we assume the bottom is here in 3Q? Or do you think we already saw the bottom?

It's a great question. I would say I would guide you to flat to down from where we're at on an ending basis. We talked earlier about the commercial real estate portfolio. I think we've got a lot of focus on the continued growth in C&I and owner-occupied commercial real estate. We are very active in terms of -- in that commercial real estate market, building pipeline and lending but there has been an increase in terms of the prepayment volumes that we're seeing in that space.

So I would signal you kind of flat to down from an overall earning asset perspective as we look out to Q3.

Our next question comes from Chris McGratty of KBW.

Great. I don't think we touched on credit, but I feel like I have to ask a credit question. Feels pretty good. Anything incremental that you're watching in the book, DFI got a lot of attention for the industry a couple of quarters back. But just anything that you're reunderwriting given higher rates?

I mean, Chris, that really the only thing that really continues for us, and it's -- and here over the past couple of quarters, it's kind of like Groundhog Day, right? I mean -- so it's ag. But we are seeing some improvement actually in ag you look at the weighted average probability of default of the ag portfolio. If you strip out tops, that probability of default is really pretty much in line with the past 4 quarters.

So that tells me that things are starting to stabilize a little bit. We've seen rates there. And that's really the one area that I continue to keep a close eye on. I mean we're -- we've got a real close eye on the smaller borrowers SBA. A small business, but those are still holding in pretty nicely. I feel really good about the portfolio right now.

Okay. I think the rest of my questions are asked.

And our next question comes from Jared Shaw of Barclays.

I guess, first, -- thanks for the PAA update from the security side on Slide 13. But was there any impact to margin from accelerated payoffs that we should consider as well? -- on the loan side?

No, nothing. That part of it has been very, very stable. I do want to point out 1 thing. So the yield piece that I talked about, there is some small amount of that, which is from the PPBI securities portfolio that was acquired. But the vast majority of that is just pure discount accretion. It's been securities that we purchased on the open market at discounts to par.

So the majority of kind of what I would call the implicit inherent volatility of accounting yield on the securities portfolio is actually not associated with any M&A that we've done. It's more just kind of open market transactions, probably accounting guys nuance there, but I couldn't help myself. And so yes, we do think that will -- like kind of a rubber band kind of snap back in future quarters to where it's been. There's really not been any real volatility this quarter or last quarter on the loan PAA.

The last time we called one out would have been Q4 where we had an outsized payoff of a marker loan but really, it's been kind of like clockwork since then. So there really hasn't been a whole lot of volatility in regard to that.

Okay. All right. And then are you generally still buying are your new purchases still at a discount?

Yes. Yes. For the most part, we bought, I want to say, $475 million worth of securities in the second quarter. The coupon on that stuff is roughly 80 basis points higher than what we've been purchasing. You probably won't see it as it blends in. It barely moves the needle in terms of the overall securities portfolio overall but we did shorten the duration in terms of the purchases that we did during Q2.

So that was, I think, purchased at a 2.6 year duration, which is obviously south of the back book in regard to that. And so on an amortized cost basis, the portfolio grew a little bit quarter-on-quarter, and that really was just kind of refilling the bucket. We've seen it kind of just moved down a little bit in Q4 and Q1. So not really any big intentional strategic shift or reallocation of capital into the securities book or anything like that or just kind of refilling the bucket and doing so at rates that we were really pleased about from a securities portfolio purchase perspective.

Okay. All right. And then just on the CRE side, just trying to, I guess, reconcile the answer to sort of Jeff and Matt's questions and then your discussion around just sort of a frothy market. So we should assume that you are able to or want to retain more of that CRE that's coming due going forward? And is that the right way to think about that and that you're willing, I guess, to take that lower pricing on that? Or how should we think about sort of the frothy market your lack of interest in those pricings, but also the loans that are coming due?

Yes, this is Tory. A couple of things to that. I think first of all, the transactional multifamily business or the transactional loans that are coming due. They'll either reprice with us at the rate that's contractual or they won't and they'll go elsewhere in, I think, either way, is fine as far as we're concerned on that, but that's a transactional piece.

On the other more relationship piece, if we won't jeopardize credit quality and we won't chase price to the floor. But that doesn't mean that we can't be competitive and that we can't keep some of the business or bring some additional business in the door, which we are today. And so it's a little bit of kind of blocking and tackling of just maintaining credit culture and negotiating wisely and getting us the highest rate that we can that makes sense for our customers and for the bank.

So as I said, we've got some growth in the CRE pipeline already. But I would want to jump in here and add that in the pipeline, the loan pipeline itself for the bank is pretty phenomenal. We have I think our total pipeline today is about just under $4 billion, and that compares to about $2 billion a year ago specifically in the commercial banking business.

So on the C&I side, which is where there's obviously [indiscernible] tremendous emphasis for us, of the $4 billion, about $2.6 billion of it comes out of the commercial banking business, and that compares to $1.2 billion a year ago. So some really nice pipeline growth mostly on the C&I side, which is what we're trying to do. And then as of late, a little bit on the rest of the time.

And I just wanted to clarify one thing, maybe I was not clear on the response to one of David's questions. This was really around the transactional component of our balance sheet. And that -- of the transactional loans we have, roughly $5.4 billion of that is commercial real estate, either multifamily or nonowner-occupied. We are not originating more transactional loans where we don't have a relationship with the end borrower.

We have in the past quarters talked about, in particular, coming out of PPBI, hey, would we take a hit to tangible capital and sell some of this at a discounted rate. And we look at that every quarter. We continue to feel that in terms of driving value to shareholders, that's not the way to do it, that I think that you would diminish tangible book value in executing that trade and that the better plan is to let that either mature or reprice back to levels that are no longer a net interest margin headwind -- so that's what I was alluding to earlier when we talked about the response to David's question, just to hopefully eliminate any confusion I might have caused there.

Our next question comes from Janet Lee of TD Cowen.

On fees, you screen as -- I mean in terms of the revenue composition, you drive more of your revenue from NII and less so from fee income versus peers. Now that the PPBI integration is behind you and to Clint's point earlier, you're having fun again. How should we think about the upside to your fee income from current level? I appreciate the mid-$80 million near-term guide. But how should we think about the growth trajectory there beyond the third quarter?

So Janet, this is Tory. I'll give you some of the details, and I'll let Ivan if he wants to kind of add in on top of that. You are 100% right. I mean there's a lot of fun in this business, and we're actually seeing it again, which is great. There's been a tremendous growth trajectory on the fee income side of the house for the bank. It's coming from all parts of the company. We -- year-over-year, our treasury management business is up just under 9% and our international banking business is up 9.5% year-over-year. Commercial card is up 9.5% year-over-year.

Our merchant business is up 9.5% year-over-year. So those things that are really solidly connected to customers, there's a tremendous growth trajectory. For the first time ever, our commercial card spend for our customers was over $100 million in June, and that's up 14% year-over-year. Our wealth business -- our combined wealth business is -- had a record-setting quarter in Q2, and their momentum is carried forward into July, and we think that will just kind of continue.

So on the fee side, just individually at the unit level, we've got solid pipeline, healthy activity in a lot of good growth. So I think it's a great story for us on the fee income side.

Is a mid-single-digit kind of growth the right rate for you?

That's probably right. I think if you were to look back the last handful of quarters, this is Ivan. We've probably been outperforming that a little bit. One of my favorite way to look at it, and I think everyone's got their preferred analytical lens is looking at the noninterest revenue as a function of the size of the bank, right? So on an average asset basis, -- and so as I look back to a year ago prior to PPBI prior to some of the optimization and then just the core growth in relationships, we were somewhere in the high 40 basis point type range -- this quarter, we reached 55 basis points. And so it's incremental.

It takes brick by brick, but it continues to translate into a higher percentage of our revenue base in the form of fee income. And I like that lens a bit more than just the percentage of the overall revenue pie because we also think that we've got opportunities to grow net interest margin, right, which will grow NII over time as well. So I think you're in the right ballpark in terms of how you're thinking about modeling that out going forward.

Got it. And if I can just squeeze in 1 more on expenses, the $330 million to $335 million range in the third quarter. Is that the ballpark range that we should be expecting for the fourth quarter? And then how should we think about the normalized expense growth run rate now that, again, the PPBI is behind you and maybe things are going back up again.

Yes. To the first question of the 2, I would say, absolutely. And Clint said it earlier, but I'll reiterate it a great call out to Drew and Tom and the PMO and our tech teams for just an incredible job with the technical integration during the first quarter of the year. And that really allowed us to turn our focus into the -- ensuring that we're very focused on the opportunities around the cost synergies like we talked about earlier. We outperformed that by $5 million in terms of that element of it.

We don't think we're done there, right? Clint has, I think, talked very directly about our excitement around being focused internally. And after doing the PPI deal and the MOE from several years ago, an opportunity to take a breath and focus on internal processes and drive optimization and efficiencies throughout the course of the bank.

And honestly, that's what you're seeing in the first half of this year as we've performed very well from my perspective on that front. We do expect that Q4 will be in the same range as Q3. I would ballpark 2% as kind of a level of normalized growth as you go beyond that, but maybe write that 1 in pencil because we'll come back with probably more firm guidance in the fall as we start to really sharpen our views into 2027 where things are going and the pace of reinvestment and some of the things that Chris was able to highlight earlier as well. So that's how I would frame that one up.

And our next question comes from Timur Braziler of UBS.

Do you need to see payoff activities start to abate before you start seeing net loan growth again -- and then I'm wondering, given some of the competitive dynamics that you called out, do you really need to start seeing net loan growth again to justify ramping up deposit growth? And is that what's ultimately needed to restart the NII growth engine?

Yes, it's a great question. I think there's more to it than just whether or not we continue to see elevated levels of prepayment volumes in commercial real estate assets. We've talked about the transactional portfolio. And so as you're looking at things on kind of a net growth basis, obviously, I alluded to nearly $1 billion worth of reduction in that portfolio over the last 3 quarters. That's a factor in terms of the growth or lack thereof. But obviously, we're very focused on optimizing our loan portfolio. And we do believe that, that will drive a more efficient both balance sheet and bank once we get through the end of that.

We've got $3 billion more that's maturing over the next 12 months. And we view that as an opportunity to recycle that capital, which has been locked into low to mid-4% yielding assets into more productive lending opportunities. We were talking about our pipeline earlier today. $1.3 billion is a great number when you compare where we landed in Q2 of this year versus the prior year. I don't have the exact percentage, but it's a significant lift in terms of the volumes. And that volume really is coming in the form of C&I and owner-occupied commercial real estate.

So it's been in the arena of where we want it to be. And then just on the deposit side, we still have opportunity to continue to optimize our funding stack. I think we were talking earlier about from Matthew's question around the level of borrowings that we have -- so as there's ebbs and flows in terms of the demand for liquidity for our loan portfolio, we can continue to week by week, optimize against that wholesale funding and maybe Chris will kind of speak more to the deposit side.

Yes. Thanks, Ivan. Yes, we don't look at it as growing deposits to always just fund loans. I mean deposit-only customers really valuable to the bank and have great relationships. If you end up with the operating accounts, then that turns around and drives into the fee income areas of us. The fact that we're holding loans steady or slightly down, it does allow us to hold the line on some of that pricing and may be able to maintain our discipline there.

But we're always interested in growing the deposit base.

And then, Clint, maybe one for you. You had called out on 19.5% illustrative ROTCE for '26 when you announced the PPBI deal I guess, in doing a postmortem over the past year, what's been the biggest headwind to achieving that target? And can you talk us through the right way to think about profitability goals going forward.

It's Ivan. I'll take a first crack at that. Look, I think we're on a trajectory for very positive ROTC levels. And I think you see an increase this quarter relative to last quarter of roughly 1% or 16% ROTCE. We're operating at a level from a capital-based perspective that is above and beyond what we think we need to efficiently operate the bank, and that's prior to some of the NPRs that are out there that, as we've talked about earlier, provide some very interesting optionality to think about continued optimization of our capital stack.

We're working through that process in terms of that excess capital. And I think have been very active in terms of the redeployment of that capital back into our share repurchase program and dividends, which, in aggregate, is going to return over $1.1 billion of capital to shareholders over the course of 12 months. So that's how I would view it. These processes take time in terms of the balance sheet optimization and the shift in mix.

And as we continue to move through that, we believe you'll continue to see upward momentum in the return profile on a return on capital basis for the franchise.

And the one thing that I'll add specific to the 19% ROTCE target. Ivan mentioned 16% here in the second quarter. What, I guess, a little over 3 quarters in 3, 4 quarters into the close of the acquisition. But you also have to remember back or think back to our starting capital when we closed the Pac Premier deal was higher. The amount of capital that they brought in and the marks -- we started with more capital than what we had in the model when we put that 19% ROTCE out there. And that actually is what enabled us to start the share repurchase program as soon as we did as well as the size of it. We sized it at the $700 million.

And even then, we're still running today after returning $500 million roughly of share repurchases and then our quarterly dividend was at about $800 million of capital return over that time period, and we're still north of 13% total risk-based capital, 8%, 6% or something like that on TCE so that's what we've always said is that we're going to generate capital, and we're going to be a capital return story. We said that 5 years ago with the Umpqua deal. And we said that Pac Premier would enhance that. And so that's -- it's a first-class problem to have, generating too much capital and trying to get that down to your level -- that's why in my prepared remarks, I said that we anticipate that we're going to continue to be in the market repurchasing our shares, investing into our company for the foreseeable future. So hopefully, that helps you.

Our next question comes from Anthony Elian of JPMorgan.

On deposits, you noted you start to see balances expand so far in July. Could you size up the magnitude of the rebound in 3Q and 4Q you expect, just given the second half of last year was muddied from the deal?

I'd say we're on a full year basis, still targeting that low to single-digit total core deposit growth that we've talked about. And I think Chris kind of unpacked it earlier in his comments, the vast majority of the movement we've had in the deposit base broadly was in the form of brokered CDs and higher cost wholesale sources. When we think about the reduction that we saw in Q2 out of our core deposit portfolio, we saw reductions in some of the legacy Pac Premier accounts, specifically in higher cost CD portfolios alongside the normal seasonal flows that we get every April.

So we're extremely pleased with what we've seen so far in July, starting to see that rebound back up in that regard. But I don't know if I want to ballpark a specific number other than kind of full year outlook in that low single-digit range.

Yes, Anthony, this is Chris. I just repeat kind of what Ivan said there on the low single-digit part of that. It all works hand in hand if we want to increase the cost of the deposits, we could drive that number a little bit higher. In the fact of keeping loans flat to down slightly, we're able to keep the discipline and keep our cost of deposits down. And so I think what Ivan stated in that low single digits is the right place to think about it.

Okay. And then on NIM, following up on a previous question, do you expect 3Q to get up to and beyond 4% for the quarterly average of what you'll print for or on a spot basis on a particular day during this quarter?

The former.

And our next question comes from Andrew Terrell of Stephen.

I just had a follow-up on the securities yield. Can you help us understand -- I guess I know the prepay assumption can move this around a bit quarter-to-quarter. But if we just assume rates are flat throughout the third quarter, does the securities yield rebound to that kind of 20-ish type level? Or do you need to see rates go back down to securities yields back up?

No. It would -- and obviously, there's a lot that goes -- a lot of technical CPR analytics and prepayment expectations that go into it. The duration portfolio of our MBS CMOs and CMBS are all slightly different. So it kind of depends on how the curve shifts over the course of the quarter at what pace and at what tenors. But generally, like the simplified version of that would be assuming it stays steady on the course of the quarter, we should not see that as a continued headwind. It really was a function of the whatever was 40 or 50 basis points shift in rates that we saw over the course of Q2. So that's the simplified way I would frame that up.

Okay. Great. That's helpful. I appreciate it. And then actually, just last one, Ivan. I think you mentioned something in the prepared remarks, just to the tune of outside of buybacks, continuing to look at ways to optimize the capital stack. Was that a reference to just the mix change on loan growth expected? Or could you maybe unpack that a little bit more?

No. I think that for the last 3 quarters, so following the close of Pacific Premier, we were excited to announce our share repurchase program, and that's really been our flagship focus for the last several quarters. And as we indicated in our prepared remarks, -- we will continue that in Q3. That will be the final quarter, our fourth quarter of kind of the authorization that we announced last year.

We're excited to come back with more dialogue on future expectations around what a share repurchase program could look like for Q4 and into 2027. And as Clint indicated, that will be a continuing focus -- in addition to that, we are looking at our full capital stack. And by that, I mean our Tier 2 sources of capital, which are really, at this point, limited to the ACL as well as some of our legacy trust preferred securities and optionalities that we have to more efficiently kind of lock in some of our Tier 2 capital at efficient rates and prices.

So that's something that we'll be evaluating here as we go into Q3.

I show no further questions at this time. I'd like to turn it back to Jacque Bohlen for closing remarks.

Thank you for joining this afternoon's call. Please contact me if you have any questions or would like to schedule a follow-up session with members of management. Have a good rest of the day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Hello, and welcome to Columbia Banking System's First Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jacque Bohlen, Investor Relations Director, to begin the call. You may begin.

Thank you, Deedee. Good afternoon, everyone. Thank you for joining us as we review our first quarter results. The earnings release and corresponding presentation are available on our website at 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 the federal securities laws. 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'll now hand the call over to Columbia's Chair, Chief Executive Officer and President, Clint Stein.

Thank you, Jacque. Good afternoon, everyone. Our first quarter results reflected continued execution against the same core priorities we have previously outlined, delivering consistent, repeatable results, optimizing our balance sheet and returning excess capital to shareholders. We also completed the Pac Premier systems conversion and consolidated 9 branches during the quarter, putting us on track for full realization of all acquisition-related cost savings by the end of this quarter.

I want to thank our highly experienced team of associates for their months of meticulous planning and the seamless execution of this key integration milestone. Our operating results for the first quarter reflect the continuation of momentum established late last year as solid C&I production offset a decline in below-market rate transactional loan balances.

We also reduced our reliance on wholesale funding as customer deposit balances expanded despite seasonal pressure typical during the first quarter. The resulting mix shift in both assets and liabilities fortifies and positions our balance sheet for sustained attractive returns over time.

Our bankers' proven ability to generate balanced relationship-centric growth in deposits, loans and quality fee income is driving sustainable earnings growth. We do not need to produce net balance sheet growth to achieve our EPS and ROTCE objectives. Columbia's cost-conscious culture further enhances our top quartile profitability profile. Beyond savings associated with the Pac Premier acquisition, our expense base reflects continuous fine-tuning.

We remain disciplined in identifying offsets that create reinvestment dollars for initiatives that drive revenue and enhance efficiency. AI is becoming an important tool for driving efficiency across Columbia. During our Pacific Premier core systems conversion, we used AI to automate work that traditionally would be completed manually.

Historically, time-consuming conversion tasks such as reviewing and validating thousands of data fields were automated and completed in a fraction of the time historically required. Instead of relying on manual checks and custom coding, AI helped us move faster and reduce complexity, which shortened review timelines and improved execution.

More broadly, AI is helping our technology teams work more efficiently. It allows our developers to move faster, test changes more quickly and write software that is more secure. The result is higher productivity and better outcomes without adding incremental resources. We also enhanced our customer support experience with an AI-powered virtual assistant. Our ratio of human calls to AI-powered agent chats moved from 2:1 in favor of humans to 3:1 in favor of AI agents as many routine administrative questions are now handled by the virtual assistant.

Macroeconomic headlines continue to dominate the industry narrative, often driving outsized stock price reactions and unilaterally treating all banks as the same. We are not all the same, and Columbia's fundamentals warrant differentiation. Over my tenure at Columbia Bank, we have repeatedly demonstrated the ability to withstand industry stress as we consistently turn disruption into opportunity.

During the global financial crisis, Columbia delivered strong credit performance while leveraging FDIC-assisted transactions to grow and strengthen our franchise. Since then, we have continued to expand our customer base through both organic growth and strategic acquisitions. Our best-in-class low-cost core deposit franchise consistently ranks in the top quartile when measured on both cost and mix of noninterest-bearing balances.

More recently, we successfully navigated the banking sector volatility in March 2023. Again, another point in time where many regional banks were treated as one. The Columbia team navigated this volatility without a discernible adverse impact to our business while simultaneously executing a successful systems conversion just 3 weeks after closing the Umpqua acquisition.

Our credit fundamentals remain sound. Our office portfolio continues to perform, a modest uptick in our CRE exposure, which is attributable to acquired portfolios, continues to decline. Turning to another closely watched area. Our NDFI exposure is minimal, well below peer averages and underwritten with the same conservative and consistent rigor we apply across our broader loan portfolio.

Our first quarter results marked the beginning of our third consecutive year of stable operational performance and strong organic capital creation. Given our current capital position and strong forward outlook, we increased our pace of buybacks during the first quarter, returning $200 million to our shareholders, underscoring our belief that the best investment we can make at this time is in the stock of our own company.

Looking forward, we will continue to execute on our established priorities, optimizing performance, driving new business growth, supporting the evolving needs of existing customers and consistently delivering superior returns to our shareholders.

I'll now turn the call over to Ivan.

Thank you, Clint, and good afternoon, everyone. As Clint highlighted, our first quarter results reflect continued execution of our strategic priorities. Turning to Slide 10. We reported earnings per share of $0.66 and operating earnings per share of $0.72 for the first quarter. On an operating basis, which excludes merger expense and other items detailed in our non-GAAP disclosure, first quarter pre-provision net revenue and operating net income increased 45% and 50%, respectively, compared to the first quarter of 2025 due to the addition of Pacific Premier, continued progress on our balance sheet optimization targets and disciplined expense management.

Turning to Slide 11. Average earning assets were $60.8 billion during the first quarter, coming in at the midpoint of the range that I outlined in January as continued balance sheet optimization contributed to modest contraction relative to the prior quarter. We modestly reduced cash as planned during the first quarter, utilizing excess balances to reduce wholesale funding sources. which declined by $560 million from December 31.

Although wholesale funding declined as of March 31, balances were higher on an average basis during the first quarter due to typical seasonal customer deposit flows. Overall, the results were as anticipated, reflecting a balance sheet -- a stable balance sheet outlook and a remix in our loan portfolio out of transactional and into relationship-based lending. Following the modest earning asset contraction during the first quarter, we expect the balance sheet size to remain relatively stable with commercial loan growth offset by contraction in the transactional portfolio.

Slide 12 outlines contributors to the sequential quarter change in net interest margin. Net interest margin was 3.96% for the first quarter, right at the top end of the range that I outlined in our last call. While the headline net interest margin is down from 4.06% last quarter, recall that our net interest margin in Q4 benefited from an 11 basis point impact of the amortization of a premium on acquired time deposits and an accelerated loan repayment.

Pro forma for those factors, we were roughly flat quarter-over-quarter. And relative to the first quarter of 2025, net interest margin has expanded by 36 basis points, reflecting the impact of our balance sheet optimization strategy. We exited the first quarter with an improved funding mix relative to the fourth quarter and expect ongoing balance sheet optimization to drive net interest income growth and net interest margin expansion, with the first quarter setting the low watermark for 2026.

As I outlined in our last call, we anticipate our net interest margin to grow modestly in Q2, crossing over 4% at some point in the quarter. Our latest interest rate modeling continues to show that our balance sheet remains neutrally positioned to interest rates on Slide 13. And you'll note that we have over $6 billion in fixed and adjustable loans set to reprice over the next 12 months.

Noninterest income in the first quarter was $83 million on a GAAP basis and $81 million on an operating basis as detailed on Slide 14, within our guided $80 million to $85 million range. The sequential quarter decrease was driven by lower swap syndication and international banking revenues following the strong performance in the prior quarter. Despite that, operating noninterest income is up $25 million or 44% relative to the first quarter of 2025 from the impact of Pacific Premier alongside strong growth in fee income streams, as Tory will highlight later.

We continue to expect noninterest revenues in the low to mid-$80 million range for Q2. Slide 15 outlines noninterest expense, which was $369 million on an operating basis. Excluding intangible amortization of $41 million, the first quarter's $328 million run rate was below our guided range due to the earlier realization of cost savings following January system conversion as well as some planned investments, which fell back into Q2.

As of March 31, we achieved $102 million of the targeted $127 million in synergies, although these savings were not fully run-rated in the first quarter's results. Excluding CDI amortization, we expect noninterest expense in the $335 million to $345 million range for the second quarter before declining in the third quarter as we realize all cost savings related to the transaction by June 30. CDI amortization will average around $40 million per quarter.

Moving on to Slide 16. Provision expense was $28 million for the first quarter, reflecting loan portfolio runoff, credit migration trends and changes in the economic forecast used in the credit models. Relationship in the agricultural industry drove a modest increase in net charge-offs and nonperforming assets relative to the fourth quarter with our overall credit metrics remaining stable and healthy.

Slide 17 details our allowance for credit losses by portfolio with coverage of total loans at 1% at quarter end and 1.28% when credit discount on acquired loans is included. Turning to capital. Slide 18 highlights our regulatory ratios at quarter end. Our CET1 and total risk-based capital ratios declined modestly to 11.5% and 13.3%, respectively, down approximately 30 basis points from the prior quarter end as our regular dividend and increased buyback activity outpaced capital generation during the quarter.

During the first quarter, we repurchased 6.5 million common shares, returning $200 million to our shareholders. As of March 31, our capital ratios remain comfortably above well-capitalized regulatory minimums and our long-term target ratios. We have excess capital of approximately $500 million and $400 million remains in our current repurchase authorization.

Tangible book value declined slightly to $19.03 from $19.11 as of December 31, reflecting a higher accumulated other comprehensive loss on our securities portfolio given interest rate changes between periods. We expect share repurchases to remain in the $150 million to $200 million range per quarter through our current authorization.

Overall, we are very pleased with the financial results for the first quarter, driving a 1.3% ROAA and over 15% ROTCE. We feel well positioned to drive strong profitability through the remainder of 2026 as our balance sheet optimization activity and continued share repurchases enhance long-term value creation.

With that, I will hand the call over to Tory.

Thank you, Ivan. Our teams had another strong quarter of business generation as new loan origination volume of $1.2 billion was up 38% from the year ago quarter. As a result, Columbia's commercial loan portfolio, inclusive of owner-occupied commercial real estate increased 6% on an annualized basis, contributing to the continued remix of our loan portfolio toward higher return relationship-based lending as transactional loan balances continue to decline. Although payoff and prepayment activity in the first quarter slowed relative to the fourth quarter's elevated level, declining balances in the transactional portfolio contributed to slight overall loan portfolio contraction to $47.7 billion from $47.8 billion as of December 31.

We continue to expect relatively stable net loan portfolio balances in 2026 as we optimize our balance sheet for sustainable profitability improvement. Turning to customer deposits. Our team's ability to generate new business and strong quarter-end inflows offset seasonal deposit pressure during the first quarter, resulting in $110 million of increase in customer balances as of March 31.

Our small business and retail deposit campaigns continue to bolster our deposit generation and our current campaign has generated nearly $450 million in new balances to Columbia through mid-April. Further, the HOA business we acquired from Pacific Premier provided a countercyclical benefit during the first quarter as balances seasonally expanded, increasing nearly $160 million since year-end.

Customer balance growth and the cash deployment Ivan discussed contributed to a $760 million reduction in broker deposit balances as of quarter end, accounting for the decline in total deposits to $53.5 billion from $54.2 billion as of December 31. Although customer fee income decreased following our strong fourth quarter performance, our results highlight the notable progress we have made over the past year, driven by the addition of Pacific Premier and our continued efforts to expand the contribution of core fee income to total revenue.

As Ivan discussed, operating noninterest income increased significantly between the first quarters of 2025 and 2026 with an exceptional growth in financial services and trust revenue, treasury management, commercial card, merchant income and other recurring customer fee business. Our core fee income pipeline remains healthy as do our loan and deposit pipelines, and we remain outwardly focused on generating business in a disciplined manner.

I will now hand the call back over to Clint.

Thanks, Tory. I want to take a moment to thank our team of talented associates for their hard work and contribution to our ninth consecutive quarter of solid financial performance and consistent results. Relationship-driven loan and deposit growth and our balance sheet optimization efforts are creating tangible earnings results as evidenced by our net interest margin expansion over the past year. This concludes our prepared remarks. Chris, Tory, Ivan and Frank are with me. We're happy to take your questions now. Dee, please open the call for Q&A.

[Operator Instructions] And our first question comes from Jon Arfstrom of RBC Capital Markets.

This all looks good, but maybe loans and margin, I guess, can you guys talk a little bit about the $1.2 billion plus in originations kind of where that's coming from in general trends? It seems maybe a little better than a typical first quarter, but just give us an idea of what you're seeing there and what the drivers are.

Yes. Sure, Jon. This is Tory. I would say it's quite a bit better than kind of year-over-year Q1 2025. I think combined of $1.2 billion in the commercial space is about $1 billion, about a 40 -- roughly almost 35% growth from Q1 2025. From -- and I think we've talked about this previously. I mean, there's been a lot of progress made in the company in an outbound effort to just deploy our resources to bring new relationships into the bank.

I think we've been very successful. We watch pipelines all the time. It's not coming from one particular part of the company. It's spread throughout the organization. We're seeing growth certainly in our historical Pacific Northwest markets, seeing some growth out of Southern California, seeing some nice growth in our de novo markets.

So it's kind of been spread throughout the company. And I think it's a combination of just a significant effort on the part of our bankers to tell the story of Columbia Bank, and it's a great story, and we're having a lot of success with it.

Okay. Good. And then, Ivan, maybe for you. Can you give us a little more on what you're thinking on the margin? I know it seems like it's trajecting -- the trajectory is higher. Maybe it's a little better than you thought. But can you talk a little bit about maybe medium-term expectations and then touch on what you're seeing in terms of deposit pricing competition?

Yes, that sounds great. I'll start us off, and then I'll maybe look to Chris to talk a little bit about what we're seeing in the marketplace regarding deposits. I mean, I think you kind of nailed it. This quarter, we landed right at the top end of the rail that we provided last quarter. And to unpack that a little bit, I think that there's 2 counteracting effects that we saw in Q1 when I think about our margin quarter-over-quarter. The headwind that we deal with in Q1, and it's the headwind that we deal with every year in Q1 is the seasonality in which we see those deposit outflows and a heavier reliance on the wholesale funding channels.

And so while our ending wholesale funding point-to-point was down, on average, we had a 7% increase in average reliance on brokered and FHLB relative to Q4. And we see that pretty much every year. I think what counteracted that and what allowed us to stay stable this year relative to past years is the tailwind.

And what we're benefiting from is the continued optimization of the balance sheet and specifically the loan portfolio in terms of the repricing of low coupon, low-duration transactional loans. During Q4 or Q1, we saw an additional roughly $230 million of that portfolio run down. That stuff is coming off of the mid -- low to mid-4% range, and we continue to replace it with core relationship lending with a 6 handle on it. And that is a very positive continued engine for us that we expect to continue going forward.

I think last 90 days ago, I hedged and said that sometime in the spring or summer, we'll cross over the 4% level. I said just moments ago, I think we will be roughly at that 4% marker here in Q2 of this year, and then we will continue to step up from there and move upwards north of 4% into the second half of the year.

From a deposit perspective, there was a bit of noise in Q4, as you'll recall, associated with some onetime kind of tail event items with the PPBI deal at Premier on acquired deposits. But if you adjust for that, our Q4 cost of interest-bearing was 2.20%. For Q1, it was 2.04%, so 16 basis points down spot to spot end of last quarter versus end of this quarter.

We saw an additional 8 basis point decrease without any Fed funds actions, obviously, in Q1. And I think that continues to point to the discipline that we bring to the table, back book CD pricing as well as just evaluating on a relationship basis, the deposits that we have. And so I was really pleased to see continued momentum in that arena as well. I'll hand it over to Chris.

Thanks, Ivan. Yes, Jon, we -- the disciplined approach that Ivan is outlining there, it's always been there. Tory and myself constantly are looking through the exception requests. We're working with our bankers on each and every one of them. monitoring the competition that's out there for rack rates. We like where we're positioned there, but we continue to look for opportunities to trim a few basis points here and there where we can.

And I think our bankers have really grabbed a hold of that and are moving forward. And then if we do get a Fed cut later on in the year, obviously, we've shown a playbook and a real nice system to deal with that in a large volume. But I can trust you, Tory and I are looking at this every single day as those things come due. And I think the results are speaking for themselves.

And our next question comes from David Feaster of Raymond James.

I wanted to start on just kind of following up on Pacific Premier. It sounds like the deal has gone pretty well so far, but I specifically wanted to talk about the conversion and the integration. How did that go relative to expectations? How is feedback from clients? Have you seen any attrition? And just post conversion, how is the team doing? And has their go-to-market focus shifted at all just integrated and we're all heading in the right direction?

Yes. Great question, David. And as usual, you pack a lot into what appears to be one single question. So we'll attempt to hit all those points. And if we miss one, just redirect us. But I've said since the very first set of town halls we had on this a year ago with the team at Pac Premier that it was different. Their reaction was different. The enthusiasm they showed for the combination and becoming part of Columbia and our market position throughout the West. And that carried through all the way to the systems conversion.

And I'll probably offend a couple of hundred people in our organization when I say that it went so smooth that I almost forgot that we did a conversion in the first quarter because there was no drama that's typically associated with it, no customer disruption. And I think it was probably out of all the ones we've done, the best that we've ever had.

And that's not only attributed to the talent that Columbia had, but also the talent and experience that Pac Premier brought to the table as well. In terms of where things have been since the January conversion, for me, my perspective is and how I term it is, is pretty much business as usual.

And I think that if anybody thought that we got distracted or inwardly focused, I mean, look at the performance that we had during what is typically our seasonally weakest quarter and the production and momentum we had on the C&I side, actually growing customer deposits during the first quarter.

I mean that's definitely something that I'm pleased with, even though it was a nominal amount. But Chris and Tory live this every single day and are much closer to the frontline associates and team members. So I'm going to step back and let them give you a little more perspective on what they're hearing and seeing at the customer level.

Sure. David, it's Tory. I'll start and Chris has a couple of things, want to say as well. I would say I'm incredibly impressed and proud of the Pacific Premier folks and just how excited they've been from day 1 to be a part of Columbia, how they have kind of gone through this -- the conversion, and it went extraordinarily well. I mean we've got a ton of momentum in Southern California.

The teams that we've had down there prior to the acquisition, they've all kind of folded in and become one very unified strong presence and strong team in Southern California. We haven't really lost anybody that of note at all from an associate standpoint. So we've got high retention of people, very high retention of customers.

We continue to find a lot of opportunity in the existing Pac Premier book to grow relationships, and we're kind of seeing that every day. And their momentum is very strong, and I think they feel very good about being a part of our company and the opportunity that's in front of them. So it's been all good, and they've done an exceptional job. And I think Chris wants to say something.

Yes, David, as we try to write down everything you packed into that, you asked about feedback from clients. And during the conversion itself, you always have the chance when people are reaching out and using the contact center that they can leave comments afterwards. We had numerous comments where they raved about the conversion that they had personally been through them before, how this was the best how they love the bank. And it was -- there were so many of them that at one point, I accused the contact center of planting them and doing them themselves, but they were real customers, and it was flat out phenomenal.

And what that really does is happy customers, they lead to happy bankers. And as Tory was talking about, it gets them back into the market. We've got the new capabilities that came from putting both organizations together, and our bankers are taking advantage of that, and we're starting to see bankers in our markets reaching out to us and asking what it's like and what are we doing and can they possibly come on board.

That's great. That's great. That's extremely encouraging. I wanted to -- you've got a slide in here that's talking about the opportunity that you have to increase density and gain share across your footprint. So I wanted to ask you on the hiring front. I think that's an underappreciated aspect of what you guys have been doing.

I know you don't put out press releases on everything that you do, but curious if you could discuss how active that you've been on the hiring front, your appetite for additional hires and maybe what geographies or segments that you're looking to add to or business lines to expand?

Yes, David, it's Chris. I would tell you that we're always interested and active. You never know when the best bankers in the market are going to decide that it's time for them to make a move. And so we're always oars in the water, looking at what we can and being ready. And we've always had the philosophy of if it's the right bankers and they can bring value to us, we'll create a position.

So it's not by putting job postings out there and things of that nature. We're looking at expanding our wealth management operation, obviously, looking at that Southern California footprint and building that out with trust folks, financial advisers, private bankers and folks that focus on health care as well. I know Tory has some of the same parts of it, and so I'll let him chime in as well.

Yes. Just to give you a couple of geographies. I mean, I'm looking at a list of just over the last 6 months, we've hired commercial bankers in Scottsdale, in Denver, probably 3 or 4 in Utah, in Eastern Washington, in Seattle, in Portland, in Los Angeles, in Orange County. It's -- we -- as Chris said, I mean, we just have a ton of bankers in the marketplace that really appreciate and understand the story of Columbia Bank and what we're doing and the success that we're having, and they want to be a part of the company. So it's a great place to be, and we're bringing them in and put them to work and they're kind of hitting the ground running. So it's really spread throughout, I think, the different business lines in the bank and the various geographies that we are in.

That's perfect. And maybe just last one. You've got a lot of excess capital as it is. You're continuing to generate a lot of organic capital. But given the regulatory relief that we've seen and the potential capital relief with that, have you done any work around what that could mean for you all, just especially given the treatment of MSRs? And does that change any of your capital priorities? Or is buybacks -- it sounds like that's still the focus for now, but just wanted to get your thoughts on that and if you've done any work around it yet.

Yes, David, we have. And I'll step back in a moment, and Ivan can give you the details on what that looks like. But from a shifting our capital priorities, the short answer is no, it doesn't. I was intentional in my prepared remarks where I said that we still firmly believe the best investment we can make is in our company, our own company stock.

And I think that's why you see that we announced the big buyback last fall, and we're almost halfway through that allotment. And so hopefully, folks take that as a sign that we're very serious about executing on that full amount. But in terms of what the MSR treatment does and things for our capital ratios, I'll leave those details to Ivan.

Yes. And thanks for the question. Yes, we're -- like pretty much everyone else, I think we're still evaluating and putting a finer point on the exact impacts of the proposed rule-making. And obviously, we're still in a comment period, so we're holding off our excitement at this point. But what's very clear from our perspective is that there is meaningful capital benefit under the proposed rules.

Our current back-of-the-napkin analysis that we've done on the NPR shows that we have a benefit of potentially up to the ballpark of 100 basis points of CET1, which obviously would provide for some interesting optionality to consider going forward, but a lot more work to be done to fully unpack that going forward.

And our next question comes from Jeff Rulis of D.A. Davidson.

Maybe, Frank, on the credit side, I wanted to get a little more color on the nonaccrual adds and some of the net charge-offs there within the ag book, particularly if you could walk us through a little detail.

Yes, Jeff, it is really centered in one customer relationship that's just a casualty of what's going on in the ag industry right now with cost inputs being extremely high and margins extremely tight. Those that have a little higher leverage have a more difficult time with it. And that's kind of what happened in this case. I mean it's unfortunate, but as well as we do underwrite ag, I mean, there's inevitably going to be a casualty, and this is one of them.

The charge-off.

Go ahead.

I was just going to -- the type of ag that, that was. Do you think it's systemic or like you said, just systemic in the frame of margins are tight, but maybe just the industry that, that was in.

Not systemic, Jeff. This particular one was in the hop industry, if you will. So I mean, I think most of us know that, I mean, hops and grapes, so beer, wine, spirits even, I mean, going through really what I would call a kind of a generational shift in demand. And this -- that only compounded what was going on in this situation. So I think it's pretty well explained in that.

Okay. And you were going to talk about the charge-off. Was it interrelated at least...

Interrelated. Exactly. Interrelated. Yes.

Appreciate it. And maybe just one other one, if I could. Got the commentary on a pretty flattish loan growth year, understanding the growth versus transactional. Is that pretty straight line over the course of the year? I guess as I try to think about '27 and potentially a return to net growth, does the back half potentially have a little bit of uptick there? And if you have a crystal ball to look at '27 and think about, we think we could scratch out low single digit. Any commentary on the trajectory of that flattish for the year?

Yes, it's a great question. I think any given quarter, we'll see a little bit of movement up and down in the loan portfolio. This quarter, obviously, we had about $100 million reduction. Our general expectation for the next 3 or 4 quarters is that portfolio will stay relatively flat.

In the last 2 quarters, we've seen almost $0.5 billion of that transactional portfolio run down. And like we talked about earlier, we're replacing that actively with strong growth in C&I, owner-occupied real estate portfolios. So any given quarter, we could see a little bit of movement up or down. But generally, throughout the course of 2026, we're expecting roughly flat. I'll hand it to Tory for some color commentary on the pipeline.

Yes. Maybe I'll just talk a little bit, Jeff, on pipeline. So our combined commercial pipeline as of the end of March was about $3.3 billion, which was up about $600-or-so million from the end of the year. So a lot of really good activity, and that's even with the production that we had over the quarter.

I mean it's up about 50% from a year ago. So a lot of activity, a lot of good stuff happening, feel very optimistic on our ability to generate C&I loan growth owner-occupied loan growth, relationship growth in the company for sure. And I think to Ivan's point, I think we'll have a really, really good shot at being stable throughout the year. And I think as the momentum picks up, I think that kind of moves into 2027. It should be a good year for us.

And I failed to mention this earlier, but over the course of the year, out of that transactional, we're expecting $1 billion to $1.25 billion that book to run down. And so for us to stay flat on that, it does require 4%, 5% loan growth out of that core relationship portfolio. So that is very real in terms of the core loan growth we're seeing there just to stay even in terms of the size of that total portfolio.

And our next question comes from Matthew Clark of Piper Sandler.

Just a few cleanup credit questions. The uptick in 30 to 89 days past due, I know it's not a big number on a percentage basis, but just some color there, where FinPac delinquencies stood at the end of the quarter versus the fourth and then classified balances this quarter versus the end of last year.

All right, Matt. So your first question with regards to the 31- to 89-day delinquencies. Really, the uptick was centered in one commercial real estate loan that is really in the process of being paid off, and that really accounted for the entire difference between fourth quarter and first quarter difference.

FinPac is exactly where we thought they would be. Their delinquencies are down from the fourth quarter as were their charge-offs. Looking forward, they've been kind of bouncing along the bottom, and they continue to bounce along the bottom of their charge-offs. And so at about a 3.4%, 3.45% net charge-offs clip, I mean, that's a great number for that business, and that's what they're doing.

So where their nonperforming are at the end of the first quarter, I would expect next quarter to come in pretty close, maybe a little bit higher than they are. But that's to be seen. Like I said on previous calls, you can kind of figure about 80% of nonaccruals roll to net charge-offs. And what was the last question? You had another one?

I was just classified balances. I didn't see it in the deck. I was just curious.

Classifieds held pretty flat quarter-over-quarter. Special mention were significantly improved quarter-over-quarter really due to -- we've had some good luck in resolution of some of these special mention as well as had a couple of them pay off.

Okay. Great. And then the other question I had was around expenses. I think you maintained your adjusted expense run rate guide of $335 million to $345 million. But I believe you have some additional cost saves from PPBI. And then just thinking through kind of all-in core expenses for the year, I think the prior guide was $1.5 billion. But again, it seems like you're tracking below that, at least in the first quarter. Just help us understand maybe why you maintained it and what we should expect to see, I guess, in the run rate going forward?

Yes, it's a great question. This is Ivan. We did have -- so a couple of things on Q1 just in terms of where we landed. It did come in lower than we had, I'd say, planned for in Q1. There's always a few smaller one-off items, just business as usual stuff.

And those things amounted to $1 million or $2 million worth of benefit to us in Q1, that was a positive. I'd say from a strategic perspective, just the strong execution on our -- with synergies and happening a little bit earlier than we'd anticipated was a meaningful factor.

And then we did talk earlier about some of the investments that we're making that you'll see us talk about in future quarters, both in terms of bankers across the entire footprint as well as expansion in markets like Colorado, Utah, Nevada as well as in our legacy markets. So there is reinvestment happening over the next 2 quarters. All that said, I do expect that we will come within that $1.5 billion expense guide due to continued expense discipline as we execute on those items.

And our next question comes from Christopher McGratty of KBW.

Ivan, just going back to Matt's question, just to make sure I got a finer point on the expenses. So ex CDI, $335 million, $345 million in Q2, do you stay in that range in Q3? I haven't fully mapped out the back half, but are you inside that range, maybe the low end? Or can you breach below that once everything is fully in the run rate?

No, we'll come in below that in the second half of the year. So I think if you were to do the kind of the math from 90 days ago, it's in the ballpark of $330 million to potentially $335 million in the second half of the year in Q3 and Q4 as we execute the remaining synergies. I made a mention of it earlier. I think we're $102 million executed out of the $127 million that's been fully identified.

There's no question mark around the timing or the impact or the sizing of the remaining cost synergy. That's all known, documented, fully written and pen. So that will happen, and that will start to flow through in Q3. So you'll see a step down kind of into that range as we turn the corner into the second half.

All right. That's great. And then moving -- just kind of putting the pieces together with the estimated impact from risk-weighted assets. I know you don't have an official public target on CET1, but how important is the TCE ratio? I've heard a few banks talk about, obviously, with the rating agencies, they focus on it. But how do you balance -- what's the right balance as you go into the medium term? Just think about buybacks after this one is done?

Chris, we've always felt like from a TCE standpoint, that we want to be in the neighborhood of 8%. And the reason is that just gives us, I guess, you call it what you want, flexibility, tempered capital, whatever. But also historically, when you back out the current AOCI impacts of bond portfolios and things, 8% kind of historically for our balance sheet is tied into what would be roughly 12% total risk-based capital, and that's a target that continues to be our binding constraint in terms of how we're viewing capital deployment.

Okay. And I guess 2 housekeeping, if you don't mind. Ivan, any help on the tax rate? And then just getting back to the ag loan, that relationship that drove the charge-offs and nonaccruals, has that been your estimate fully addressed like provision-wise in terms of the P&L?

Yes. So I'll take both of those. On the first one, the answer is same as last quarter. I would use a 25% all-in effective tax rate as you model it out. And on the second one, I think the answer is obviously, yes, right? We feel very comfortable with the level of allowance that we have, 100 basis points.

The modeling and the process that we go through does factor in, obviously, components of a baseline economic scenario, but we have a lot of deep discussion across the institution, and we also incorporate elements of an S2 downside scenario. And as it sits today, we've got 100 basis points of loss content. That's over 3.5 years of charge-off content on a run rate basis relative to the last few quarters.

And we have an additional 28 basis points of coverage from the credit discounts on the acquired portfolio. So yes, fully in line and fully contemplating the credit elements that Frank talked about earlier.

And our next question comes from David Chiaverini of Jefferies.

So I wanted to swing back to the deposit outlook. You had good success with the $450 million in new deposits from your recent small business and retail campaign. Do you have similar campaigns planned for the spring or summer to continue the deposit momentum?

David, this is Chris. The current campaign will end here in the next 10 days or so, end of the month, 2 weeks. And then we'll take -- we always take a bit of a break in between cleanup client follow-up, make sure everybody has got everything buttoned up like they need to. And then we'll relaunch -- see so that's May. We'll relaunch in June, and then we'll have another one that goes into the fall as well. So typically 3 per year. I'll probably reiterate that there's no special products. There's no special pricing. This is all the stuff that we have off the shelf, and it's really a campaign around focusing our retail branches on going out and deepening business and winning business.

Great. And looking at the noninterest-bearing deposits on a period-end basis, up modestly sequentially, average basis was down a bit. Curious on your view in terms of looking at the forward curve and how there's fewer cuts in the forward curve, to what extent this could be a headwind on noninterest-bearing deposit growth?

On noninterest-bearing deposit growth?

Right.

Yes. I don't think that we'll see a big headwind in terms of noninterest-bearing deposit growth relative to 90 days or 180 days ago when we expected 2 rate cuts. I think it's been a competitive market for the last 3 years since March Madness and will continue to be. But we talked about the strategies that we're deploying in terms of relationship-based banking, business Bank of Choice on the commercial side and then the campaigns that Chris talked about earlier, and we feel like those will continue to drive favorable positive growth in terms of the core deposit portfolio going forward.

And then just in general, on the interest rate environment, I think that our balance sheet is incredibly well positioned for neutrality, which is by design. And as we think about various scenarios that could go on as we look forward throughout the rest of the year, most of the things that will drive us upwards and forwards are going to be things that we control in terms of the execution of our strategy instead of whether we get one cut late in the year or not, doesn't really move the needle as much as kind of our strategic execution plan. So those would be my comments on that.

And our next question comes from Janet Lee of TD Cowen.

For the second quarter, just making sure that this math is reasonably correct. For NII, can we assume flattish average earning assets from here going into the second quarter? And then, Ivan, you talked about getting to that 4% NIM. So does that get us to about $605 million-ish NIM for this -- sorry, NII for the second quarter? Am I thinking about this correctly? Or is there a timing issue on when you reach the 4%?

No, I think you're thinking about it correctly.

Okay. Got it. And for -- on your Slide 12, I believe on the NIM slide, you said the net interest margin outside of the 2 one-off impacts in the fourth quarter was fairly consistent and stable. If you strip out the entire PAA on like a core core NIM basis, can you comment on how that has trended? And if there has been any change in PAA forecast given the change in environment?

No. We view the discount accretion on the acquired loans as well as any discount accretion, whether it's through a bank acquisition or through regular bond purchases that we do each month. We view that to be core. Obviously, if in unique circumstances like in Q4, if a large credit with a large mark pays off early, there can be some short-term volatility. But in general, we don't disclose a breakout of PAA in regard to that. Was there a second question that I didn't touch on there?

It was on PAA.

And our next question comes from Anthony Elian of JPMorgan.

Ivan, you saw deposits contract in 1Q as expected, but can you give us some color on what you expect for 2Q deposits and the magnitude of the headwind you expect from tax payments here in April?

Yes, I'll start, and then Chris can jump in if he wants to correct me on anything here. But generally, what we see is that deposit contraction begins happening in kind of the latter part of Q4, which is what we saw and disclosed in our Q4 results late last year kind of as we enter the holiday season. From a balance sheet perspective, I talked earlier about the ending versus average nuances on wholesale funding.

And that Q4 contraction that we talked about last quarter resulted in about $500 million of draws in the latter days of December. And then generally, obviously, as we go through tax season here in April, we kind of reach a low point kind of in the mid- to late April time frame and then return to a rebound through May and through June.

So Q1 being one of our historically weaker seasonal quarters, Q2 being a bit of a mixed bag. So you have kind of a V pattern in terms of how that goes. And so -- and then Q3 and Q4, Q3 being strong in Q4, like I talked about. So that's generally how we think about the seasonal deposit flows.

And then Slide 17 on the ACL. Does this 1% feel like a good level, just given your earlier comments that you expect stable loan balances for the rest of this year?

Yes. I think I mentioned a few things earlier. I feel very comfortable with 1% allowance on loans. You'll note on the right side there that as you factor in the credit discount on acquired components, we're up to almost 1.3%. We looked at that from every which way and feel very well reserved for the level of risk that's in our portfolio and the macroeconomic outlook going forward.

And our next question comes from Samuel Varga of UBS.

I just wanted to turn back to loan growth for one more question. If we look at the payoffs on the traditional sort of relationship-oriented portfolio, the payoffs still seem relatively elevated after 3Q, 4Q and 1Q as well. Just curious, as we sort of look into conceptually into 2027, do you need to see these payoffs moderate to start producing loan growth? Or do you think that the production volume on its own is able to push balances higher without the payoffs moderating?

Sam, this is Tory. I'll start. I think Ivan will probably chime in a bit. I think payoffs, paydowns the typical flow within the commercial loan book is about where it would normally land. And we had production on the C&I side that far exceeded and outstripped that. So we've got some, I think, nice C&I growth for this quarter, feel really good about the pipeline and the C&I growth in Q2 and beyond through 2026 and then into 2027, we've got a lot of great momentum going on in the company.

The payoffs on the real estate side, much of that is, I think we talked about is just transactional loans that we're just letting go out the door because they're not going to be a relationship in the company for those that are transactions that we feel like we can bring in deposits and bring in core operating accounts and make them relationships, and we are doing that. So I think we're kind of on pace to where we are at this point. And then you'll probably see in '27 and '28, you see less of the transactional runoff but continued growth for -- on the production side.

And from my seat, one area that we remain laser-focused is on that transactional portfolio. We've been talking about it for several quarters in a row. And as you'll see in the disclosure back on Page 24, we've got nearly $3 billion of transactional loans that are sitting there that are priced in the mid-4% range that will either mature or hit a repricing date over the next 12 months. And then the volume of that begins to slow down meaningfully as you get into the latter part, call it, mid-2027. So that's where I think you've got the potential for an elevated level of prepayment volumes as those loans come back into the market at rates that are markedly different than the ones that they've been enjoying for the last several years.

So there is that potential there. Whether or not we fully replace 100% of that volume, however, we're very confident in our ability to drive positive operating leverage and continue to drive growth in top line revenues. As Clint alluded to and mentioned earlier, we don't need to see net loan growth or balance sheet growth to drive positive operating leverage.

And so that's one of the positive dynamics that we have is the optionality that, that affords us. Plan A, replace it with core relationship-based loan volume. But if we don't fully replace it, we've got opportunity to continue to optimize our funding stack as well. And that as well will be accretive to net interest margin. So we feel very positively about driving positive operating leverage going forward.

Great. And just a quick follow-up. Do you happen to have the retention number on the transactional loans that came due this quarter and stayed on balance sheet?

I don't have the number in front of us. I would say that with rates being elevated, we're having a lot of success in those that are going from fixed to floating and retaining them at this point at a reprice, which is very positive for the bank, but also in -- with generating some deposits and operating accounts from those transactional loans and making them full relationship customers of the bank. So...

I'm showing no further questions at this time. I'd now like to turn it back to Jacque Bohlen for closing remarks.

Thank you, Deedee. Thank you for joining this afternoon's call. Please contact me if you have any questions or would like to schedule a follow-up discussion with members of management. Have a good rest of the day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Okay, everybody. Thank you for being here. We have another afternoon fireside chat with Clint and Ivan from Columbia. Yes, I want to thank you guys for being here. I know you've had a full day of meetings, and we're just going to go over some strategic questions and see how you guys are doing. But 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.

Yes. Thanks for having us, Jon. See a lot of familiar faces. So I'll be brief on the overview, but we're headquartered in Tacoma, Washington, a little over 350 locations throughout the eight Western states. 300 of those are on the coastal states of California, Oregon and Washington and recently completed our acquisition of Pacific Premier Bank, which, as I've described it, kind of rounded out the franchise that we envisioned. And so pretty excited about -- we had a very successful systems conversion a couple of months ago. The team is producing, excited, happy to be part of Columbia. And so now that puts us kind of focused on what's next and how we view that is, as I mentioned, our franchise is now complete.

So it's really about just fine-tuning it, making it the best that it can be. And if you think back and you've followed us for a long time, you think back to 4 years ago, 4.5 years ago when we announced the Umpqua acquisition. And since then, we've effectively put three very large banks together. And so 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. And so that's the stuff that we did it in the past. We did it in 2018, 2019. If you recall, we've come out of a period of doing 10 acquisitions over 10 years and just had a lot of -- when you're constantly integrating the company, there's a lot of things that you want to get around to and you never get around to it. And so it's nice to have a moment in time where you can just hit the pause button and kind of work on making the franchise that we have the most it can be.

Okay. Good. Western economies. Maybe give us an update -- and there's obviously a lot of cross currents in terms of the economic news and the macro news. But how are you feeling generally about the footprint, the health of the footprint and how are borrowers generally feeling?

Yes. Broadly, really feel really, really good about it. I always say, if you don't watch the news, you're not on social media, life is pretty good. And I think we -- last year was a great example of -- as we went through the liberation day and the tariffs and customers were trying to figure out the impact of that, they kind of pulled back and especially in the coastal states, and there was a lot of handwringing in the Intermountain states, they just kept doing what they do. They didn't -- they weren't really impacted by that. But 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 we have to always manage through whatever is coming next. And so 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.

And we've seen that momentum carry into the first quarter here. I think if there's any kind of thing that I'm just monitoring, it's really -- it's the business climate in Portland and Seattle. And what I mean by that is business is really good. Businesses are doing well, but we're not in necessarily -- it's not necessarily the most business-friendly place to be.

And so longer term, we wonder 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. And so you think about some of the companies that have left those three major states where we have a lot of presence, and you can list companies in all three states. And there's still a lot of vibrancy, so I don't want to paint a negative picture. But that, to me, I always have to give you something, I'll not just tell you that it's all sunshine and roses. But that's the one area where I'm just kind of taking a close look at.

And the Washington tax.

Yes. Which one?

More than one?

Yes. Yes. So last year, the governor signed the largest tax increase in state history. And this is all -- this is tax and spend. It's -- if you look at the amount of spending increases they've had over the last six years. And so last year, they passed a tax bill. So in Washington, you have a business and occupation subs 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. And so then you worry about, okay, where does the threshold end up? And then 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 so they didn't enact it at that time. But what they did is they put it in place during COVID when nobody was paying attention. With our presence in the city of Seattle, that cost us a few hundred thousand dollars. Now they want to do that statewide, and that would be several million dollars. So 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. And we can move some of those positions around. If they're noncustomer-facing, especially, we can put them anywhere in our footprint. So we have options. But yes, that's kind of the climate. It's a race to see who can outdo one another between California, Oregon and Washington.

Yes. Okay. Okay. Good. Ivan, the new CFO -- what are some of your key priorities from the finance office perspective? And what are you thinking about for 2026?

Yes, it's a great question, and I appreciate you asking it. So first of all, the team that I inherited is chock full of 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 scenarios around that.

We had an opportunity with some of the transition in the team to bolster our treasury organization. So I was really excited to announce a new leader actually earlier this week in the Arizona market as a new corporate Treasurer. And so 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 going to kick start a quarterly business review where we're going to 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 platform. So those would be just a couple of the areas that we're spending some time 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 you see for growth for the company?

Yes. We've been getting a lot of questions in our meetings about growth. And 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 businesses sell, you can have record production and maybe your growth is a little bit muted because of -- you had a few businesses that sold and paid you off or something. And if we do our job, we keep them as a wealth management client.

As 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. And I think that's a great position. When you think about just our market position in general, there's only four of us in our size category, West of the Mississippi. And that gives us an advantage of -- 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.

And so that differentiates us in terms of if you're with BofA or a Chase or a Wells, you don't get that same access to the top of the house to senior leadership. And 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 going to be there and help you succeed and help you grow your company.

They get that opportunity with us, and it's meaningful. So when we look at the different markets, 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 upmarket. What we have now as a result of Pacific Premier, it's very granular. It's very much like what Colombia -- historic Colombia was in terms of where you're on the lower end of the spectrum.

So it gives us in that market and as a company, it gives us a lot of granularity, but then diversification. So some of the business lines that we have, we look at, and this is some of the work Ivan is 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.

So 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. And I always wonder what's next, right? Like is this little squirmish that we're in now? Is that going to cause people to retrench? So far, we're not seeing it. But if nothing breaks in the economy, I think we've just -- we're set up really well for the year.

Okay. Good. Ivan, maybe for you, just a couple of balance sheet questions. Talk a little bit about the optimization on the asset side and where you think you are. And we'll get -- I guess we'll get to liabilities. But talk about the asset side and where you think you are in that process.

Yes, absolutely. So if you look at our total loan portfolio, you've got just under $48 billion of loans. And 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. And 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. And so 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 when those relationships will hit either their maturity or a repricing date.

And 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. And so we anticipate something like $1 billion, potentially up to $1.5 billion of those transactional loans will move off over time. That's coming off our books at a 4%, 4.5% coupon and is being replaced through what Clint talked about earlier, core relationship lending is coming in at 6% to 7%. And so that fixed -- that repricing is a significant driver of positive operating leverage.

So 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. And 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. And generally, we're still seeing kind of a high single-digit, low double-digit CPR on that book. And that's the most meaningful driver from an earning asset perspective in terms of what's going to drive our NIM upwards going forward.

Okay. Clint, how do you think about balance sheet size in general?

In general, so I'll go back in time 5, 6 years ago, and I felt like that we needed to double the size of our company to remain relevant long term. And at the time, I think we were $18 billion, $19 billion. And long term, I was viewing longer than 10 years. And so now we sit here today at call it, $68 billion. So we've far exceeded what I thought. And I still think that number holds true that at $40 billion, you're always going to be relevant no matter what happens in a consolidating industry.

So 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. So really, it's about profitability. I'm not fixing it on an asset size. I hear some of my counterparts talk about that they're driving towards a certain asset number. What drives us is I have some profitability and market cap targets, and I'm not going to share them, but the team knows what they are. And how do we get there? And we can get there by doing the things that we're doing, by completing the balance sheet remix and that. And then I do think that growth will -- bottom line growth will come back to us because of the types of activities that we're focused on. But by completing and optimizing that balance sheet, we're going to be a much more profitable company. And then hopefully, that translates into shareholders getting rewarded with a better valuation.

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. I think that the funding stack, we have a phenomenal deposit base. And Pac Premier's was a mere image. They were actually priced a couple of basis points better than what we were. But when we look at our customer deposits, 33%, 34% noninterest-bearing, industry-leading pricing on it. But I think that it gets diluted some because of the wholesale funding. And so 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 on the capital side, I'm a recovering CPA, recovering CFO. I've recovered from being a CFO. I'm glad he's doing it. It has to deal with CECL. But I like things to be clean and simple. And I don't necessarily -- we have some [indiscernible] we need to clean up, inherited sub debt that would be nice to get pushed off. And those are some of the priorities that Ivan and I have been looking at.

And then longer term, maybe it makes sense at our size, maybe we put some preferreds on or something like that. But I want to clean everything up first before we decide what that looks like. But broadly, that's an easier lift, I think, than the loan aspect, because as the loans pay off, we can just push the wholesale funding off or as we continue to make inroads with some of our retail campaigns that have gone very well, 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 say that the muscle memory that this company has around deposit portfolio management is very strong. And I think you see the evidence of that through what we disclosed in terms of, for example, like the beta that we've experienced so far.

So we've had a 54% beta. My personal thesis is that it will get more difficult for the industry as a whole as we continue to go down the curve there, to drive strong betas, but that's just 1 data point. And that happens very fast, right? So 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. The finance and treasury organizations coming together. And I think what that allows you to do is it's like 3 yards in a cloud of dust, right? It doesn't happen overnight.

But as you go quarter on quarter-on-quarter continue to grow that core deposit book and allows you to optimize the funding stack. And we still have opportunity, right? I think we're a company that's got a margin in Q4, if you adjust for some of the onetime factors at 3.95, and 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 over time.

So I think that's the exciting part of it and 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 -- 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.

Yes. We might as well talk about it -- you sold some of my funding 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.

Yes. What we've talked about from a net interest margin perspective is like the Nike Swoosh, right? So 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. And so you have that higher reliance this quarter relative to other quarters on higher cost funding channels. And so what we've guided to is somewhere in the ballpark of a 3.90%, 3.95% type margin for Q1.

And then just like you saw last year, kind of a stair step up. And 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. And so that's pretty exciting, right? So you've got an opportunity from where we sit to have positive operating leverage half to half.

So revenue is going to go up from the first half to the second half with that net interest margin story. And then 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.

Yes, it'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 has gone up over the last couple of weeks, but very stable. We have absolutely 0 concerns about being able to cover the quarterly dividend. We announced the $700 million buyback in October and immediately got to work on that. And we've completed the amount that we were expecting to do for the first quarter here. So 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.

So 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 to 24 months of remixing the balance sheet that we're going to generate way more capital than what we can reasonably and prudently deploy. And so we're going to return that to our shareholders.

How did you come up with a $700 million number?

A lot of modeling and looked at the number and -- because, again, we're still above our long-term targets. And so if we -- even at -- I mean, we're going to -- between the dividend and the buyback, we're going to return about $1.1 billion to shareholders this year. And even at that, we're still above our target. So when the team was putting in numbers and it was -- there's a whole range. And of course, then we stress tested it. And even in our severe stress scenario, still didn't get us close to those long-term targets. And so I said, well, we should do more then. And so that's what we took to the Board, and that's where we ended up.

It's like going back to the old, old Colombia. .

Yes. And that's another point too, 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. And 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. .

I know the answer, but M&A appetite, anything you want to say on that? .

Yes, I think there's a lot of chatter. I think it's going to be good for a lot of banks, but it's not for us. We've done our work. I said Pac Premier was the missing piece. Our franchise is complete. And -- and I'm really excited about the things that we're working on internally that are going to improve efficiency, improve our profitability 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 going to put our focus and our energy. And if there's any M&A that creates disruption in our marketplace, so maybe we benefit from it, maybe we don't. But we're certainly winning much, much more than we're losing out in the marketplace today.

Consistency -- that's the things. Yes. 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 .

Yes. I should have mentioned the transactional portfolio, it's not like a good bank, bad bank thing. It's really just the nature of those being transactional only loans. So there's no real credit concerns. In fact, that's pristine from that perspective. We don't have a big software lending business. So we're not in that bubbled up. NDFI is less than 1% of our total assets. Not big in the private credit space.

And so as the different news media kind of hotspots have moved around, there's really nothing there that we've kind of been exposed to or worried about in that regard. I think the one area that we always kind of keep an eye on is the agriculture side because there's always some component of that that's struggling in some part that's doing well. You're subject to mother nature there. And so that's always kind of one spot where we keep a close eye. But other than that, expecting another solid update here.

Okay. Good. Anything else you feel like we haven't covered that we need to cover? .

I think it's -- 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.

Yes. Thank you.

Thank you.

Thank you, Towanda. Good afternoon, everyone. Thank you for joining us as we review our fourth quarter results. The earnings release and corresponding presentation are available on our website at columbiabankingystem.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 will now hand the call over to Columbia's Chair, CEO and President, Clint Stein.

Thank you, Jackie. Good afternoon, everyone. The fourth quarter marked a strong end to a tremendous year for Columbia. We continue to advance our strategic priorities while delivering solid operating performance and consistent repeatable financial results. During 2025, we announced and closed our strategic acquisition of Pacific Premier Bank. As I've stated many times, Pac Premier was the missing puzzle piece to complete our Western footprint. The acquisition bolstered our position as the preeminent regional bank in the Northwest and improved our competitive position in other key Western markets, most notably Southern California, where we now hold a top 10 deposit market share position.

We remain on track for another seamless systems conversion this quarter, supported by our highly experienced team of associates, meticulous planning and successful integration activity to date. I'm very pleased with the cultural integration I have witnessed over the past several months as well. Our new team members from Pac Premier continue to impress with their unrelenting focus on taking care of customers while adapting to Columbia's products, policies and processes. We also contributed to our operational momentum through de novo growth, opening new locations in Arizona, Colorado, California and Oregon during 2025.

These investments reflect our commitment to expanding our presence throughout our entire footprint. We have planned for continued targeted de novo activity in 2026 with investments funded by resources set aside from our 2024 expense initiative and other efficiency opportunities. Turning to the fourth quarter. Columbia's operating results were once again consistent and repeatable, underscoring our focus on operational enhancement and top quartile and, in some cases, top decile performance. Fourth quarter operating PPNR was up 27% from the third quarter as our focus on profitability and balance sheet optimization was enhanced by the full quarter run rate of Pac Premier.

We are already seeing that momentum carry into 2026 with the continued realization of deal-related cost savings and healthy customer pipelines across each of our business units and geographies. Our teams remain focused on the activities that drive business with new and existing customers. Our ongoing balance sheet management strategies are enhancing the quality of our earnings and driving strong internal capital generation. Our disciplined approach to balance sheet management encompasses our prudent credit underwriting and proactive portfolio monitoring. Our fourth quarter metrics highlight our strong credit profile, which remained stable throughout 2025 as we were untouched by external events that negatively impacted some of our peer banks.

Looking forward to 2026 and beyond, we will continue to prioritize profitability over growth just for the sake of growth. Our priorities have not changed. We remain focused on optimizing performance, driving new business growth, supporting the evolving needs of existing customers and consistently delivering superior financial results for our shareholders. Our bankers have worked tirelessly to generate consistent, repeatable earnings for 8 consecutive quarters. Consistency has long been a historical trend for Columbia, and we expect that trend to continue as we go forward. I want to thank our associates for another incredible year. Your dedication and passion to be the best drive our success, and I couldn't be more excited about the opportunities ahead.

Together, we are building a stronger, more dynamic Columbia, one that delivers lasting value for our customers, communities and shareholders. I'll now turn the call over to Ivan.

Thank you, Clint, and good afternoon, everyone. As Clint highlighted, the fourth quarter completed a strong year for Columbia. On an operating basis, which excludes merger expense and other items detailed in our non-GAAP disclosure, fourth quarter pre-provision net revenue and operating net income increased 27% and 19%, respectively, compared to the prior quarter, while full year 2025 results rose 22% and 31% compared to 2024. These improvements reflect 4 months of operating as a combined company following our acquisition of Pac Premier as well as our continued emphasis on balance sheet optimization and disciplined expense management.

Focusing on the fourth quarter, we reported EPS of $0.72 and operating EPS of $0.82, increases of 6% and 15%, respectively, from the prior year's fourth quarter. Net interest margin expansion and corresponding increase in net interest income was a key driver of earnings performance. Net interest margin was 4.06% for the fourth quarter, up from 3.84% for the third quarter and 3.64% for the fourth quarter of 2024. Slide 19 of our earnings presentation outlines the contributors to the 22 basis point sequential quarter expansion with improved funding performance serving as a primary factor alongside continued earning asset optimization.

Having reduced wholesale funding by nearly $2 billion during the third quarter, the fourth quarter results reflect the full benefit of these actions alongside 2 additional months of operating as a combined company. Net interest income during the fourth quarter also benefited from $12 million in premium amortization related to acquired time deposits, which we anticipated and highlighted last quarter and $5 million from an accelerated loan repayment, contributing a combined 11 basis points to the margin. The premium on time deposits was fully amortized as of year-end, and it will not repeat in 2026. Noninterest income was very strong in Q4 with $90 million on a GAAP basis and $88 million on an operating basis as detailed on Slide 21.

Of the $16 million sequential quarter increase in operating noninterest income, $13 million reflects 2 additional months of Pac Premier, while the remaining $3 million was driven by higher customer fee income, most notably in swap and syndication banking revenue, representing a high watermark for those revenue streams. Slide 22 outlines noninterest expense, which was $373 million on an operating basis. Of the $66 million sequential quarter increase, $62 million relates to Pac Premier, inclusive of cost savings. As of year-end, we achieved $63 million in annualized deal-related cost savings or approximately 50% of the targeted $127 million, although these savings were not fully run rated for the fourth quarter's result.

Excluding CDI amortization expense of $42 million, operating noninterest expense of $331 million was at the lower end of our $330 million to $340 million range that we signaled in our last call as certain investments fell back into 2026 from a timing perspective. Flipping back to Slides 16 and 17. Provision expense was $23 million for the fourth quarter, reflecting low portfolio -- loan portfolio runoff, credit migration trends and changes in the economic forecast used in our credit models. Our credit metrics remain stable and healthy, and our allowance for credit losses was 1.02% of loan at quarter end and 1.32% of loan balances when the credit discount on acquired loans is factored in.

Continuing with the balance sheet, our investment securities portfolio is outlined on Slide 11. The portfolio increased by approximately $100 million during the fourth quarter as we purchased $246 million of securities at a weighted average base yield of 4.52%, partially offset by paydowns. Gross loans and leases were $47.8 billion as of December 31, down from $48.5 billion as of September 30, as we continue to allow below-market rate transactional loan balances to decline alongside declines in our CRE construction and development portfolio.

Chris will discuss loan portfolio trends in greater detail shortly. Total deposits were $54.2 billion as of December 31 compared to $55.8 billion as of September 30. During the fourth quarter, we intentionally reduced brokered and select public deposits, which collectively declined by over $650 million as alternative funding sources offered more attractive rates. Seasonal customer outflows, which Chris will discuss, also contributed to the decline. To supplement funding, term debt increased to $3.2 billion as of December 31. Slides 20 and 25 review funding flows, our balance sheet sensitivity to interest rate changes and maturity and repricing schedules.

Turning to capital. Slide 18 highlights our expanding ratios, supported by net capital generation and balance sheet optimization. During the fourth quarter, we increased our common dividend to $0.37 per share from $0.36 per share and repurchased 3.7 million common shares at an average price point of $27.07. Even with the execution of our buyback activity, we saw CET1 and total risk-based capital ratios increase to 11.8% and 13.6%, respectively, as of December 31. Tangible book value increased to $19.11 as of December 31, up 3% from the prior quarter and 11% from the prior year. Looking forward, we expect net interest margin in the first quarter to land in a range from 3.90% to 3.95%, consistent with what we indicated on our last call.

This change reflects the absence of the 11 basis point benefit in the fourth quarter from acquired ceded premium amortization and the accelerated loan repayment activity that I discussed earlier as well as higher wholesale balances added to the balance sheet in the latter part of December, resulting from seasonal deposit flows. After bottoming out in the first quarter, we expect net interest margin to trend higher each quarter throughout 2026 as customer deposit balances rebound and balance sheet optimization actions continue to improve profitability, ultimately surpassing 4% net interest margin in the second or third quarter of the year. As we saw this past quarter, our continued balance sheet optimization activity may lead to modest earning asset contraction during the first quarter.

We have maintained a conservative level of excess liquidity following the Pacific Premier acquisition, and we may reduce excess cash to further optimize our funding structure by repaying wholesale sources. Following these actions, we expect the balance sheet size to remain relatively stable with commercial loan growth offsetting contraction in the transactional portfolio. Excluding CDI amortization, we expect noninterest expense to remain in the $335 million to $345 million range in the first and second quarters before declining modestly in the third quarter as we realize all cost savings related to Pacific Premier by the end of Q2.

CDI amortization will average around $40 million per quarter. We expect to increase share repurchase activity to a range of $150 million to $200 million per quarter in 2026, noting $600 million remains authorized under our current plan. We ended the year with over $600 million in excess capital on our most constrained measure. Overall, we are very pleased with the financial results for the fourth quarter, driving over 1.4% ROAA and over 17% return on tangible common equity, and we feel very well positioned to continue to drive strong profitability as we move into 2026. I will now hand the call over to Chris.

Thank you, Ivan. Our teams had another strong quarter of business generation. New loan origination volume of $1.4 billion was up 23% from the year ago quarter, while full year 2025 volume was up 22% from the previous 2024. As a result of this activity, Columbia's commercial loan portfolio increased 6% on an annualized basis, although the growth was offset by a decline in transactional loan balances, construction and development loans. We also sold $45 million in acquired loans risk-rated special mention as we continually prune our loan portfolio. Slide 24 in our earnings presentation provides additional balance and repricing details related to transactional loans. We continue to expect this portfolio to amortize down until loans reach their repricing date, limiting our net loan portfolio growth, but improving our profitability.

Turning to customer deposits. The strong growth momentum from the third quarter carried into October, bolstered by our successful small business and retail deposit campaign, which ran from September through mid-November and added $473 million in low-cost deposits. Inclusive of the 2 campaigns completed earlier in 2025, Columbia generated $1.3 billion in new customer deposits through 3 successful campaigns. Returning to the fourth quarter, customer deposit balances contracted due to seasonal decreases in customer accounts driven by company distributions, tax payments and other typical year-end payouts. We expect modest additional deposit contraction during the first quarter and into April, given anticipated customer tax payments, with net growth resuming in the spring as business activity accelerates and seasonal payments end.

As Ivan discussed, customer fee income increased for the fourth quarter. This was driven by the addition of Pac Premier and our continued efforts to expand the contribution of core fee income to total revenue. On an operating basis, noninterest income increased 26% in 2025 over the previous year with exceptional growth in treasury management, international banking, financial services and trust revenue along with strength across other core fee businesses. Pac Premier's custodial trust business has been a powerful complement to our existing wealth management platform, and we expect continued fee income momentum as we deepen customer relationships with legacy Pac Premier customers.

Our loan, deposit and core fee income pipelines are healthy, and we remain outwardly focused on generating business in a disciplined manner. I will now hand the call back to Clint.

Thanks, Chris. The past several years has brought significant change to Columbia. 2023 was a year of widespread integration following the closing of the Umpqua acquisition, which impacted every associate at each legacy organization. We collectively managed through industry liquidity events that occurred in tandem with the deal's elongated closing and our scheduled systems conversion. 2024 was a year of efficiency initiatives. Our full-scale review resulted in consolidated positions, simplified organizational structures and an improved profitability outlook. In 2025, we added the missing piece to our Western footprint with the Pac Premier acquisition. We continue to invest a portion of 2024's cost savings into de novo locations in targeted markets.

In addition, we added new talent throughout the company, launched new products and implemented new technology, all with an eye towards improving operational efficiencies and growing revenue. We also made significant progress optimizing our balance sheet as we increased capital returned to our shareholders by repurchasing shares. As we look to 2026, we have set the stage for an exciting future. We are now positioned to deliver on the full capabilities of our company with the resources, talent and vision to excel in every market we serve in the pursuit of long-term shareholder value creation. We expect to continue to generate meaningful excess capital and fully intend to return that excess to our shareholders. This concludes our prepared comments. Chris, Tory, Ivan and Frank are with me, and we're happy to take your questions. Towanda, please open the call for Q&A.[ id="-1" name="Operator" />

[Operator Instructions] Our first question comes from the line of Jon Arfstrom with RBC Capital Markets.

Congrats on the Chairman role, Clint, first of all.

I guess maybe to start this, can you talk a little bit more about Pac Premier? You referenced it in your prepared comments, but it's showing up everywhere in the P&L and you talked about it as the missing puzzle piece. Can you talk about how it's going so far and what kind of contributions you've seen so far in terms of growth?

Yes. I'll kick it off and then ask Tory and Chris both to offer their insight as well. I've said on previous calls and in various discussions from the very first week that we announced this, how this one was different and how the folks at Pac Premier showed a level of excitement that typically you don't see initially or at least not widespread like what we experienced in the days and weeks following the announcement. And then typically, it's an emotional time for people as change can be hard. And so there can be a little bit of ebb and flow in terms of emotions. And we've seen none of that.

Nothing but excitement, embracing the ability to do more with their long-standing and very deep customer relationships, excitement of being part of this broader company that has a footprint and reach throughout the Western U.S. So we work really hard at it. We have some great leaders that joined us from Pac Premier that we're working hard every single day to make sure they're taking care of their people, taking care of their customers. And and managing through the change. And the last hurdle that we have is the systems integration. And we have a very seasoned team as well as Pac Premier has had a very seasoned team, both Columbia and Pac Premier, I think on a combined basis over the last 15 years have done 20-plus systems conversions and integrations.

And so that talent has been hard at work and completing mock conversions and all kinds of other detailed work that goes beyond the scope of my knowledge. But I can tell you that the 2 co-leaders of the integration management office, we were on a call on Tuesday, and they look very calm, rested and confident in their ability to execute on the task that's at hand. So I'm going to step back and ask Tory to provide a little more detail on what he's seen as he's been throughout the market and in front of customers more recently than I have.

Great. Thanks, Clint. And Jon, just to give a slightly -- a little bit more color. As Clint said, I mean, the enthusiasm and excitement from the Pac Premier folks has just been amazing. I mean it's been centered in kind of 3 different areas. One is the ability to grow with their existing customer base. So as those customers get bigger, they get to do more stuff with them. Second would be to call on larger customers, I think, than they historically have in the -- on the commercial side of the house. They're continuing to do what they've always done, but they're they're kind of slightly going up market, which has been fun for them and great for the bank.

And I think the third is just provide more products and services for the customers based on the capabilities that we have as a new company. And I'll give you a couple of examples because we look at these often and they're kind of fun to see. I mean they have a law firm that they brought into the bank that's $22 million in credit and $20 million in deposits. They brought in an environmental remediation company, about $200 million in revenue, a company much bigger than they would historically call on, $10 million credit facility and $10 million in deposits. We got a surgery center, again, something bigger than they would normally call on $40 million in deposits, $15 million in credit.

And then lastly, they had a construction contractor that they banked for a while that expanded their credit facility, and they added $20 million and got up to a $60 million credit facility. So just some great examples, I think, of the Pac Premier folks embracing this -- our new company and seeing the opportunity in front of them and seizing on it. It's been really fun to be a part of.

Jon, this is Chris. I'll add -- I'll echo the excitement that has not waned it one bit. The quarter was full of training on our relationship strategy and getting people ready. And we've talked previously about the number of referrals that were coming in across all different business lines. Tory gave you some really nice larger ones there, but it's very granular as well. And I think another piece is we really started digging in and seeing how the deposit portfolio, which we said was similar to ours, how it has really held up and the customers are behaving in that manner. And so that's a real good indication that everything we thought in that space is playing itself out. And I'll close you with the training is there.

We're getting ready to go. And later this quarter, we'll launch another retail campaign, and I can't wait to see the results of that. So it's pretty exciting.

Okay. Good. And then just a small one. Ivan, thanks for the guidance, by the way. What is a modest step down in earning assets mean? Can you help us frame that?

Yes, I certainly can. So we ended the quarter with earning assets at around $61.3 billion. And as we look out into Q1, our expectation at this point is that HFI loans will stay roughly flat to modestly down relative to our ending balance that we just published at 12/31. I mentioned it earlier, we will likely see some modest decline in our cash balance levels as well relative to where we finished up the year. just in that we've been holding an excess there for the last few months following the PPBI close. So that will impact earning assets, obviously, it won't impact net interest income in regard to that. So I would signal a range probably in the $60.5 billion to $61 billion range for the first quarter of next -- of this year.

[ id="-1" name="Operator" />

Our next question comes from the line of David Feaster with Raymond James.

I wanted to maybe kind of follow up kind of on that growth side. I mean, obviously, we had a lot of payoffs and paydowns this quarter. I'm curious maybe how much of that was intentional runoff versus like normal payoffs and paydowns just being elevated? And then just as you look at those transactional relationships, I mean, we got $2.8 billion. How much of that do you think you can retain? Or would you expect a lot -- a majority of that to exit the bank?

Thanks, David. Ivan here. I'll start, and then I'll hand over to Tory for maybe more of the color commentary. When you think about that loan decline at $686 million quarter-on-quarter, I really break it down into 2 major buckets. The first is what you referenced earlier, which is that transactional portfolio decline at just under $300 million. And then the second really being very concentrated within the commercial real estate construction and development portfolio, and Tory will speak a little bit more to that aspect of it. Within the transactional book, so far, we're seeing CPRs at kind of 11%, 12%, 13% type level as we've been tracking it over the last quarter. We do believe that will move a bit quarter-on-quarter depending on kind of what's coming up for repricing.

We've got $4 billion of that book that will be maturing or repricing here over the next 24 months. And as we've talked about in the past, some of that stuff is likely to reprice and stay on our balance sheet. But if it exits, that's also an opportunity for us to drive strong accretive value from a revenue growth perspective, whether that's in the form of backfilling with core relationship lending kind of in the 6.5-plus type range is what we're seeing. So a 200 basis point yield improvement on that or through kind of elevating our paydowns on the wholesale side of the equation. So that's kind of how we're thinking of it at this point, fairly similar to where we were.

So as I look at it quarter-on-quarter, kind of validation of what we were thinking would likely occur and what we talked about 3 months ago. I'll hand over to Tory just to kind of give more color commentary as well.

Thanks, Adam. David, this is Tory. I'd break it down into 2 different pieces. The first would be the transactional multifamily division lending that we've talked about a lot and Ivan mentioned that. And I would say this, that roughly 70% or 80% of it today that's coming up from kind of this fixed to floating period is just rolling into the bank at a 6.5% to 7% coupon. And then the balance of that is exiting the balance sheet and going -- either being paid off or going someplace else being financed somewhere else. But we're retaining right now somewhere between 75% and 80% of it. I don't know if that changes much over the course of this year, but that's kind of what we're seeing today.

On the construction side, I mean, essentially, we've got a lot of projects that have gotten to a point where they are seasoned and stable, and they're just rolling from the construction facility into permanent financing. And roughly 85% of that, that's exiting the bank is being permanently financed by Fannie or Freddie and the balance is either being done a little bit by us or other banks or life companies. So the majority of it is going to the agencies and just a little bit of it is kind of rolling into either life money or commercial banks. So that's kind of where we are on those 2 big asset classes for us.

Okay. That's great. And then maybe just following up on Jon's question a little bit on Pac Premier. I know we've got the conversion upcoming. I was hoping we can maybe get a sense of the time line for the integration of like all the systems. And you got a slide in here that talks about some of the rollout of all their technologies in addition to some of the key businesses that you're focused on cross-selling or leveraging. Chris, you mentioned the custodial trust business. I know they're going to be included in this next small business campaign. I'm just kind of curious, again, the process and the time line to roll out some of their technologies and then the fee income lines to cross-sell post conversion.

David, you never disappoint. You packed a lot into that follow-up question. I'll just start by saying kind of a general guide in terms of the systems component of it is in Ivan's prepared remarks, he noted that we expect to have the full realization of the cost saves in the -- by the end of the second quarter. So that kind of gives you a good sense of the ancillary systems and shutting down surplus servers and getting all of those other things aside from just the core system integrated. I don't think we will ever be done in terms of when we look at technology implementation and utilization and because it's a moving target. And that's just as an organization.

We're always going to be in some form of investing and optimizing the tech stack. In terms of timing of some of the technology that we were excited about from a proprietary standpoint that Pac Premier brought along, the first mandate was make sure that the folks from Pac Premier don't lose any of the functionality or the customers lose any of the functionality that they've had for many years. So we don't want anybody going backwards, and we want to use it as a way to springboard the legacy Columbia customer base and employee base forward. So you had a lot in that question. And so I'm going to step back and let Ivan, Chris and Tory offer their insights.

David, you mentioned the custodial trust piece of it. I'd tell you, that's an example of where there's a real win from the standpoint of the technology that they use for the core business is something that we're actually looking to adopt into our fiduciary trust business and bring them even closer in line together. They have a deposit portfolio that will go through the banking conversion. HOA goes through that. The rest of the bank goes through it as well. As Clint said in his remarks, we're very comfortable with where we're at. That's upcoming. And from there, I think you'll see it's pretty stable, and we'll really look at these opportunities where we're taking advantage, not just the things that we bring to the table, but the things that Pac Premier brings to the table.

And that custodial trust one has already paid dividends in winning new business because we have that capability now or the combined capabilities.

I'll just add, David, this is Tory, that we're full steam ahead, and they're doing -- I think they're doing a great job. Chris mentioned earlier in prepared remarks of a I think 23% origination growth quarter-over-quarter, like a big chunk of that is Pacific Premier. And what excites me about that growth is all the growth from Q3 to Q4 is C&I growth. And they're just -- they're fully locked in on that. Our pipeline for core fee income, TM, commercial card, international banking and merchant is up nicely. We're about -- roughly $10 million pipeline, which is really strong. A big chunk of that is Pacific Premier. So they're out there providing the products and capabilities that we brought to them, and they're doing a great job executing it.

Yes, David, and I'll just add like another example of one of the things that we were excited about was Pac Premier's -- they called it their API marketplace and that connectivity to customer systems and everything. And we're not super creative as bankers. And so that is now the Columbia Bank API marketplace, and it's been fully implemented and is operational and being utilized across the combined company today as we sit here. So every component of what we can do, and I'll kind of lean into some of my prepared comments about how do we get more efficient, how do we get better every day as an organization and then what kind of activities can we do or what kind of talent can we bring in to drive additional revenue sources and value for all of our stakeholders. And so it's just, what I'll call a relentless pursuit of those types of activities.

[ id="-1" name="Operator" />

Our next question comes from the line of Jeff Lewis with D.A. Davidson.

Ivan, I appreciate the earning asset discussion for Q1. I wanted to try to get the sense for the full year on the loan balance. It looks like $2.8 billion set to reprice or run off within a year in that table on '24. Just wanted to see what the offset is on organic growth. So what do you expect the loan portfolio on net for the balance of the year?

Pretty flat is our current outlook. So we saw a bit of that step down here, as you saw during Q4. We are currently -- as Tory mentioned earlier, we've seen some of that transactional portfolio roll into relationships we've been able to retain. So currently, the outlook for total loans is relatively flat to year-end. That will ebb and flow quarter-on-quarter. So you'll probably see some plus or minus to that each quarter. But generally, the goal is to offset any of that transactional runoff with core relationship-based lending activities.

Okay. All right. I appreciate that. And then the second question on capital. It sounds like -- on the buyback, I guess, first part of that is -- I think your stock is 10% higher than it was on average what you bought back in the fourth quarter. So one a nice trade. But does that diminish your appetite at all? And then the second piece is the alternative use of capital beyond buyback and organic growth, if you focus on talent lift-outs, a special dividend and/or M&A?

So Jeff, you're taking a queue from David Feaster and packing a lot of threads into that. And so there's parts of it that probably makes sense for Ivan to respond to. And then obviously, I have some thoughts. And so I'll try to hit on -- between Ivan and myself, we'll try to hit on all your points. But if we miss one, just redirect us I still think as a company that we're undervalued. The lift in our share price has been nice, but it doesn't change our view on reducing the share count and repurchasing stock. I said on the last quarter's call that I believe that the best investment we can make is in our own company. I still firmly believe that.

And so really no interest in M&A with our increase in our share price, still buybacks make sense for us from my point of view. We fully expect at some point, we may get to a position where the markets got us valued appropriately and buybacks may not make sense and special dividends are tools that we've used in the past when we've been in that position and obviously would take a lot of discussion with our Board. And as we approach that, we would signal that to investors and make sure that folks fully understood why we were making that pivot. There are some things that we can do in terms of cleaning up the capital stack and things of that nature, and that's where I'll step back and ask Ivan to give you his thoughts.

Yes. No, it's a great question and something we spend a lot of time on. When we talk about capital priorities, really, there's 4 of them, right, ensuring that we've got the capital necessary to lend to our core clients, right, so supporting core loan growth opportunities there. Number two, obviously, the dividend, you saw us pick that up 3% quarter-on-quarter, and we announced that last quarter as well. Number three, we are making investments in the business. Clint referenced some of them earlier in terms of market expansion opportunities. And we've heard Chris and Tory talk kind of in the past quarter as well about some of the teams that we're building out and bankers that we're adding in certain markets, which is very exciting.

And then fourth, to the extent to which we still have excess capital, we will continue to execute our share buyback program. And we do see that as a programmatic approach to it, likely a multiyear approach given the level of excess that we're currently looking at. So that's kind of how we've thought about the capital opportunity there.

[ id="-1" name="Operator" />

Our next question comes from the line of Jared Shaw with Barclays.

Maybe starting with the loan sales that you broke out, the $45 million, were those considered -- were those classified PCD? And I guess, where did they -- where did that sale come through in terms of where they were carried or marked? Is that what that $1 million gain is on gain on sale loans?

Those were all Pac Premier adversely rated loans, I will call that. And we had kind of a unique opportunity to offload some loans with certain accounting, and that's what we did. So there's about $1 million hit, I believe, to goodwill associated with that loan sale. So it's really a win-win.

Okay. So otherwise, it was basically sold at carrying value. There wasn't a gain or loss associated with that?

Correct.

Any -- what's the appetite for additional loan sales from here? Or was that -- I mean, I guess it sounds like that was a little bit of a unique situation, but could we think that there's additional sale opportunities out there?

We've looked at -- in every single quarter, we look at component parts of that transactional portfolio in particular. The piece that Frank just talked about was kind of a cleanup execution from the PPBI acquired portfolio. I would not expect anything big from a transactional portfolio. We would still take a significant capital hit if we were to do kind of a bulk sale on some of those assets, but we will continue to evaluate for kind of more surgical opportunities as we go throughout the year.

Okay. And then I guess shifting to deposits and deposit costs. Thanks for giving us the spot rate there of 206% at 12/31. How should we think about deposit pricing and deposit costs as we sort of move through the first half of the year with some of the moving parts in the deposit categories?

Yes. And we try to be careful. I'll start and then maybe I'll hand it over to Chris. So quarter-over-quarter, like you mentioned, we saw interest-bearing deposits flow from about a 2.43% last quarter down to 220% when you exclude the CD premium impact. And as you quoted kind of that 206 in the closing days of the year, with the rate cuts happening throughout the course of Q4, the full effect of that wasn't reflected within the quarter. We've seen, I think, since Q2 beta over 50%. We continue to believe that 50% is a good estimate from a through-the-cycle perspective on the interest-bearing deposit beta. And really, that comes down to execution. And I think we talked in prior quarters around the rates down deposit playbook, and we've now done that 3 times in the last several months, and it's a great effect. I'll hand it over to Chris to give kind of some business commentary as well.

Thanks, Ivan. And Jared, the pricing aspect of it really becomes market-driven. And so we're analyzing that and following our competitors all the time. And when we see opportunities where we can bring it down 5 basis points, we will. When we see renewal rates are maybe a little higher than what we typically anticipate, we might see that there's opportunities to bring down CD rates and things of that nature. And so it's a pretty fluid process throughout the quarter and looking at those opportunities. And then further, we're really starting to look at -- because of our footprint now, we're really looking at some regional types of pricing, which may give us the opportunities to be able to recognize markets that aren't quite as competitive versus those that are and keep that more in balance in check.

But it's really an active ongoing process. Tory and I have conversations with bankers all the time about the exception portfolio and what we can do in there. And it's really -- it's not waiting for just a Fed action to make things happen, although deposit playbook has been fantastic. We're always looking for opportunities to trim there if we can.

[ id="-1" name="Operator" />

Our next question comes from the line of Chris McGratty with KBW.

Ivan, on the expense guide, I just want to make sure I'm clear. So Q1, $335 million, $345 million and then add $40 million from there. If I'm doing the math on kind of your run rate, half of the run rate expenses are in, I presume Q1 is your seasonally high watermark. And then I guess I'm trying to get after the exit rate once you get all the synergies. Any fourth quarter exit rate would be helpful.

Yes. I think you nailed it. Full year, somewhere in the ballpark of $1.5 billion with more of that in the first half than the second half. Second, exit velocity should be south of $3.70 all in and probably in the range of about a $3.30 excluding the CDI impact.

Okay. So that's super helpful. The $15 million, is that a fully loaded or is that a -- that's a fully loaded number, right?

Yes, that includes the CDI accretion impact.

Okay. And then if we think about like expense and investments in technology have been a big theme this quarter. Once you get to that stripped out number in the fourth quarter, can you just speak about the need to invest, the balancing act between operating leverage as you go into next year?

This is Tory. I mean just -- I'll just jump in on the investment side quickly. I would tell you that Chris and I are continuously looking for opportunity to bring people into the company. So there's been -- over the past probably 1.5 quarters, we've added 5 commercial RMs in Utah, a team in Northern Idaho, a team in Eastern Washington, a franchise finance team, a couple of RMs in Phoenix. 3 new teams -- I mean, we're continuously looking at and finding really good talent that we're investing in and bringing the company. And we watch very closely the de novo locations that we've created and every one of them is profitable within 12 months. Most of them a lot earlier than that.

They're just really good solid bankers coming in, bringing customers with them and kind of just off to the races right out of the gate. I think, Chris, I don't know if you have any want to add to that, but.

No, I'd just echo it, same markets. We're finding talent in the health care space. They've hit the ground running extremely quickly. We're finding talent in the wealth space. That typically takes a little longer because of the fee-based type of business that they run. But with the -- we do it a 12-month look back, and we're very pleased with the folks that we brought in last year, and we're continuing to build out that business as well. And I think maybe part of your question, Chris, was around the other technology and the things of investing in the bank. And that's just always been part of our run rate. I don't know that you see anything different unless we come across something that's going to be a real game changer for us. That's really built into a way of life for us. So...

Perfect. And then, Ivan, on the tax rate, any thoughts?

Right now, we're modeling a 25% effective tax rate for 2026.

[ id="-1" name="Operator" />

Our next question comes from the line of Matthew Clark with Piper Sandler.

Just circling back to the deposit discussion. Can you remind us what your comfort zone is from a loan-to-deposit ratio perspective?

Yes. Right now, we're in a very comfortable spot. I think we finished the quarter at 88%, comfortable into kind of the low 90s, certainly, 90%, 94%, maybe 95%, we'd start to kind of look at other options there. But we've got excess liquidity to work with in regard to that.

Yes. And then the other one for me, just on -- with the sale of the special mention loans that were acquired from Pacific Premier. I don't think I saw it in the deck or the release, but can you give us a sense for where your criticized loans or classified loans stood at the end of the year relative to last quarter?

Special mention loans were lower. Substandard loans were a little bit higher, roughly about $130 million swing each direction. So basically resulting in some special mention -- both special mention loans migrating down into substandard and not necessarily due to degrading performance, but more of an elongated term of an elongated downturn, let's call it. We don't really expect anything more negative to come out of that, but we're just reflecting the risk profile at this point.

Okay. Okay. So net-net, relatively flat. Is that what I'm hearing or?

Correct, yes.

[ id="-1" name="Operator" />

Our next question comes from the line of Anthony Elian with JPMorgan.

Ivan, I appreciate the color you gave us on NIM for this quarter. How are you thinking about NII in 1Q, just considering the impact day count and the absence of the time deposit premium?

Yes. I think when you look at -- so first of all, we put up obviously a very banner, strong finish to the year. We talked about in Q4, some of the elements, including the $12 million impact of the CD accretion. So I'd back that out with earning asset outlook that I talked about earlier, along with the 3.90%, 3.95% net interest margin for Q1, would expect NII to dip down just below kind of the $600 million range in the first quarter before ying back up above that in Q2.

And above that in the second half as well, correct?

Yes. Yes. It should continue to trend up throughout the course of the year.

[ id="-1" name="Operator" />

[Operator Instructions] Our next question comes from the line of Janet Lee with TD Securities.

If I were to put together the comments that were provided on earning assets, $60.5 billion and $61 billion for the first quarter and then NIM surpassing the 4% mark in either second or third quarter. So, am I fair to describe earning assets staying in that $60.5 billion to $61 billion or modestly trending down throughout 2026, while NIM stays in that 4% range in the back half of 2026. Is that a fair way to describe the baseline expectations?

Yes, on the first part regarding earning assets. On the second part regarding NIM, what I expect is that we will dip down to a range of 3.90% to 3.95% in Q1, and then we'll grow back up each quarter sequentially from a net interest margin perspective, surpassing 4% at some point in Q2 or Q3, and we'll continue upward from there.

Continue going upwards above that 4%...

Correct.

Each quarter. Got it. Sorry if this was asked already. Do we -- did you talk about the fee income growth expectations for 2026? Obviously, fourth quarter was a very solid quarter, it appears. How should we think about the growth in fee income?

Yes. From a core perspective, I would model core fee income in the low to mid-80s type range. Q4 was an absolute banner finish to the year. And we talked a bit about swap syndications and some of those items that are -- we don't have a lot of kind of chunkier fee income elements within our core operating noninterest revenue base, but those elements were high watermarks for the quarter. So modeling somewhere in the low to mid-80s would be appropriate.

[ id="-1" name="Operator" />

We have a follow-up question from the line of Anthony Edman with JPMorgan.

Clint, for you, just from a strategic perspective, does anything change with you now adding the role of Chair?

The short answer is no. This is something that from a Board perspective, we've anticipated would occur around this time, and we began actively discussing and working towards it from a full Board perspective in kind of the back half of 2024. And I'll say that one area that has been a focus of conversation over that time period and will remain a focus initially for the Board and specifically for me with the expanded role is to continue to work with Maria and Louis on what's the right size for our Board, what does refreshment look like. So I guess the way to sum it up is our roles are changing, but our priorities as a Board are not. And we added 3 directors from Pac Premier.

That was also a component of refreshment as we had 3 directors that rotated out in 2025. And I think we've quickly seen the impact that fresh thinking and new perspective brings. It's been very healthy, a lot of great dialogue with the Board. And so that's just the kind of work that we're going to be focused on in 2026.

[ id="-1" name="Operator" />

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Jackie Bohlen for closing remarks.

Thank you, Towanda. Thank you for joining this afternoon's call. Please contact me if you have any questions or would like to schedule a follow-up discussion with members of management. Have a great rest of the day.

[ id="-1" name="Operator" />

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Hello, and welcome to Columbia Banking Systems Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jacque Bohlen, Investor Relations Director, to begin the call. You may begin.

Thank you, Didi. Good afternoon, everyone. Thank you for joining us as we review our third quarter results. The earnings release and corresponding presentation are available on our website at 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.

First, 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 will now hand the call over to Columbia's President and CEO, Clint Stein.

Thank you, Jacque. Good afternoon, everyone. Our eventful third quarter is characterized by meaningful progress and growing momentum.

First, we were excited to successfully close our strategic acquisition of Pacific Premier on August 31. This milestone completes our 8-state Western footprint and bolsters our position as the preeminent regional bank in the Northwest with approximately $68 billion in assets.

We hold nearly 10% deposit market share in the Northwest and an improved competitive position in other key Western markets.

Pac Premier significantly enhances our scale and positions us to capitalize on our low-cost core deposit base across an expanded and highly attractive footprint, most notably in Southern California, one of the nation's most dynamic and densely populated markets.

Over the last few years, we have created a cohesive regional powerhouse. Our Western franchise now spans the entire West Coast from Washington throughout California.

We are uniquely positioned in our region for organic growth opportunities in dynamic markets such as Arizona, Colorado, Nevada and Utah. We are integrating new capabilities and deepening relationships with both new and existing customers while maintaining our commitment to consistent top quartile performance and sustainable relationship-driven growth focused on generating positive economic impact.

We remain focused on optimization, generating new business, supporting the growing needs of existing customers and delivering superior results for all of our shareholders, even as we look to complete the integration of Pac Premier.

We have strengthened our company by gaining scale, broadening our product offerings and adding to our best-in-class core deposit franchise, driven by our Business Bank of Choice strategy, all while delivering robust profitability and maintaining a conservative balance sheet.

The scale and breadth of the franchise we've built allows us to concentrate our focus on organic growth in our footprint, and our robust profitability will support our plans to deliver meaningful capital returns to all our shareholders.

We believe this strategy will drive long-term shareholder value. Within our first week as a combined organization, nearly every former Pac Premier branch made a referral to a product or service that was not offered before the acquisition.

Our new team members hit the ground spinning, and we are thrilled by their continued enthusiasm. We see tremendous opportunities with our newly enhanced presence in Southern California and throughout our broader footprint.

We have quickly begun to benefit from the capabilities Pac Premier brings to our organization like custodial trust services, expertise in HOA banking and proprietary technology that enhances the banker and customer experience.

Turning to the third quarter. Columbia's operating results were once again consistent and repeatable, underscoring our focus on operational enhancement and top quartile and, in some cases, top decile performance.

Third quarter operating PPNR is up 12% from the second quarter and 22% from the year ago quarter. The improvement reflects our focus on profitability and balance sheet optimization as well as 1 month with Pac Premier.

Our teams continue to cultivate new and existing relationships, driving strong customer deposit growth and meaningfully higher loan origination volume during the third quarter, which Tory will detail in a few minutes.

The success of our bankers and the exceptional teams that support them enables us to organically remix both the left and right sides of our balance sheet, enhancing the quality of our earnings and driving strong internal capital generation.

We continue to allow transactional portfolios to run down, and we transferred a small portfolio of residential mortgages to held for sale.

These activities offset our relationship-driven growth in support of our portfolio remix efforts. We intend to organically manage down roughly $8 billion of inherited transactional loans.

As I have stated many times before, absent a significant decline in rates, we will hold the majority of these loans until they mature or pay off.

However, we will strategically prune the portfolio with sale opportunities where payback periods are short and align with value preservation and creation.

As I've said before, we prioritize profitability over growth for the sake of growth. In keeping with that approach, we utilized excess cash from customer deposit growth and balance sheet optimization actions to repay higher cost wholesale funding sources during the quarter.

The result was a meaningful increase in our net interest margin. Our disciplined approach to lending supports our strong credit profile as well as our profitability.

Our adherence to prudent credit underwriting and proactive portfolio monitoring is reflected in our stable third quarter portfolio metrics and a lower level of net charge-offs.

It remains a busy [Audio Gap ] Columbia, and I want to thank all of our associates for their hard work and contribution to another period of solid performance with our third quarter results.

With the addition of Pac Premier, we are sharpening our focus on organic growth initiatives, amplified by the disciplined cost-conscious culture that defines our operating model.

This is the franchise we set out to build, one that is scalable, resilient and positioned for continued long-term value creation that rewards shareholders with the return of capital.

Now that we've outlined our third quarter results, I want to take a moment to acknowledge our CFO, Ron Farnsworth. This will be Ron's last earnings call with Columbia as he is stepping down following a very successful tenure as our CFO, marked by many notable accomplishments.

Ron has been a valuable member of our team and a partner to me over the last several years as we integrated our teams, optimized performance to drive profitability, completed our Western franchise with the acquisition of Pac Premier and meaningfully expanded our opportunities to drive long-term shareholder value.

The Board, management team and I want to thank Ron for his many contributions to Columbia and wish him the best in his future endeavors.

Ivan Seda, who has served as our Deputy CFO since last August, has been appointed Columbia's next CFO. Ivan is a proven financial leader with extensive financial services experience, having previously served as CFO of Union Bank and other executive roles.

Ivan hit the ground running over the last several months, and we know he will be a great asset to Columbia as CFO.

He'll be spending a lot of time with him in the quarters ahead. I'll now turn the call over to Ron.

All right. Thank you, Clint. We reported second quarter EPS of $0.40 and operating EPS of $0.85. Operating excludes merger and restructuring expense, along with other fair value and hedging items detailed in our non-GAAP disclosures, which I encourage you to review.

Our operating return on average tangible equity was 18.2%, while operating PPNR increased 12% from the second quarter to $270 million.

The main drivers of operating PPNR growth this quarter were the contribution of 1 month of Pacific Premier and favorable balance sheet remix trends, given customer deposit growth and transactional loan runoff.

Operating earnings further benefited from no provision for credit losses due to the impact of improving economic scenarios on our CECL models and a decline in loan balances outside of the acquisition.

Our GAAP provision expense of $70 million was due to purchase accounting stemming from the acquisition. On the balance sheet, we strategically sold acquired investment securities that did not fit within our existing portfolio after deal closing and purchased new securities to maintain our relatively neutral position to interest rate changes as detailed on Slide 21.

Cash from net security sales, Pacific Premier and transactional loan portfolio runoff was used to reduce our reliance on wholesale funding sources as we continue to optimize our balance sheet.

Strong customer deposit growth also contributed to a collective $1.9 billion reduction in broker deposits and term debt during the third quarter, driving net interest margin expansion.

Our tangible book value per share increased slightly in the quarter to $18.57 as internal capital generation and a favorable change in AOCI offset deal-related dilution.

Notably, tangible book value has increased by 4% since Q1 when we announced the transaction.

Our acquisition of Pacific Premier resulted in tangible book dilution of 1.7%, well below the 7.6% we anticipated at deal announcement due primarily to lower discount fair value marks as market yields are slightly lower than when we announced the deal.

Our regulatory capital ratios expanded meaningfully with our Tier 1 common now at 11.6% and total risk-based capital ratio at 13.4%.

Our excess capital positioned us to put a share repurchase authorization in place, which Clint will detail in a few minutes.

As I mentioned earlier, our NIM expanded during the quarter, increasing 9 basis points to 3.84%. Funding remix I discussed drove the majority of the change with 3 basis points of the quarter's expansion, attributable to purchase accounting on acquired CDs as detailed in our earnings release.

The amortization will continue during the fourth quarter, but we do not expect it to extend into 2026.

As I noted, our provision for credit loss was $70 million for the quarter, and our overall allowance for credit losses was 1.1% of total loans, down from 1.17% as of prior quarter end due to portfolio composition shifts, model recalibration following the addition of the Pacific Premier portfolio.

Inclusive of the credit discount, our allowance was 1.34% of total loans, up 3 basis points from the prior quarter end.

Noninterest income was $77 million for the quarter. And on Page 23 of our earnings release, we detailed the nonoperating fair value changes. Excluding those items, our operating noninterest income of $72 million for Q3 was up $6 million, reflecting the addition of Pacific Premier.

Also noted on Page 23, total GAAP expense for the quarter was $393 million, while operating expense was $307 million.

The increase from Q2 reflects 1 month operating as a combined company and other miscellaneous increases as we reinvest cost savings realized in 2024.

We are already realizing savings associated with Pacific Premier with approximately $48 million of the targeted $127 million in expected annualized cost savings achieved as of September 30.

Systems conversions are scheduled for Q1, and we expect a clean expense run rate in the third quarter of 2026.

And with that, I'll now hand the call over to Tory.

Thanks, Ron. Our teams had a tremendous quarter of business generation. New loan originations of $1.2 billion is up 36% quarter, while year-to-date volume is up 21% from last year.

On an organic basis, Columbia's commercial portfolio, inclusive of owner-occupied real estate increased by 5% on an annualized basis, contributing to our targeted loan portfolio remix as we allow transactional balances to decline.

Slide 25 in our earnings presentation provides additional balance and repricing details related to transactions. We expect this portfolio to amortize down until loans reach their repricing date, at which point they will reprice higher or refinance elsewhere, improving our profitability in both scenarios.

Turning to customer deposits. Balances increased nearly $800 million organically during the quarter. While balances benefited from the seasonal balance lift, we typically see during the third quarter, approximately 30% of the growth was attributable to new customers.

Our bankers continue to target full banking relationships when they bring new customers to Columbia, and our performance reflects their success.

We are also seeing the benefit of our de novo branch strategy in our newer markets, which contributed nearly $150 million to the quarter's deposit growth. Core fee income increased from the second quarter's strong base.

We continue to target a higher concentration from core fee income to overall revenue, and we are already seeing revenue synergies from Pacific Premier.

On an operating basis, noninterest income increased 9% due to 1 month's contribution from Pacific Premier, including a $3 million contribution from Custodial Trust Services. Not only will Pacific Premier's Custodial Trust business complement our existing wealth management platform, but their expertise in HOA banking and escrow and 1031 exchange businesses also offer revenue-generating opportunities.

We expect to see deeper customer relationships with legacy Pacific Premier customers, and we are already introducing Pacific Premier branches to the CB Way, which offers needs-based sales solutions to our customers.

This has contributed to strong referral activity from legacy Pac Premier branches. Since deal closing, referrals to Columbia business lines, including branches from our new Pac Premier associates has driven over 1,200 opportunities.

Our Business Bank of Choice strategy, which is powered by our talented team of associates is a key driver of our ongoing balance sheet optimization efforts, helping to further strengthen our profitability.

Our pipelines are healthy, and we remain outwardly focused on generating business in a disciplined manner. I'll now hand the call back over to Clint.

Thanks, Tory. Our third quarter results wrap up 7 consecutive stable quarters of operational performance and capital accumulation.

Our ability to generate capital beyond what is required for prudent growth and our regular dividend is significantly enhanced by our acquisition of Pac Premier.

And our balance sheet management activity during the quarter contributed to our expanding regulatory capital ratios.

Ron mentioned the dilution to tangible book value from the Pac Premier acquisition was 1.7%. Our anticipated 3-year earnback at announcement is now expected to be less than 1 year.

Our CET1 and total capital ratios were 11.6% and 13.4% at quarter end, well above our long-term targets of 9% and 12%, respectively, and up notably from 10.8% and 13% as of June 30, despite closing a strategic value-enhancing acquisition.

Let me repeat that. Our CET1 and total capital ratios were 11.6% and 13.4% at quarter end, well above our long-term targets of 9% and 12%, respectively.

Further, our TCE ratio was 8.5% as of September 30, well above the 8% target exclusive of AOCI marks we have consistently discussed since Q1 of 2024 as an indicator that we were able to evaluate share repurchases.

Given our excess capital and strong forward outlook for continued net generation, especially in light of our progress integrating Pac Premier, I'm pleased to announce our Board of Directors authorized a $700 million share repurchase program, reflecting our confidence in the strength of Columbia's balance sheet.

To put that in context, we have roughly 110 basis points or approximately $550 million of excess capital above our long-term target today. In addition, we expect to produce exceptional profitability, which will result in meaningful capital generation over the coming quarters.

We do not currently plan or have a need to do any securities restructurings. However, we are continuing to drive organic growth and evaluate balance sheet optimization opportunities in line with our commitment to enhancing long-term shareholder value.

This concludes our prepared comments. Chris, Tory, Ron, Ivan and Frank are with me, and we're happy to take your questions. Didi, please open the call for Q&A.

[Operator Instructions]

And our first question comes from Chris McGratty of KBW.

Clint, I mean, you're making a pretty big statement with the buyback. I think I'm interested in kind of the balancing act between capitalizing on a cheap valuation and the balance sheet optimization strategies that you talked about. Maybe could you unpack the pace at which you'd expect the buyback to come out?

Chris, so the program is a 12-month program. It is a bit of a balancing act between where we're at. And there will be some things from time to time, we'll want to maintain flexibility for any uncertainty in the macro environment or volatility.

A couple of weeks ago is a great example. A couple of banks reported a credit issue, and our stock went down for no apparent reason. So things like that, we'll be opportunistic and strategically take down the -- some shares in terms of a repurchase. But I'll step back and let Ivan kind of give you a little more details that might be able to help you kind of figure out how to model that.

Yes. Chris, thanks for the question. Like Clint mentioned, right, we're sitting today about $550 million above the target on the back of the lower tangible book dilution and the strong financial performance in the last few quarters.

As we look forward to Q4 2026, as Clint mentioned, strong expectation that we'll continue to show strong profitability as we go throughout the course of the next year.

We've got a $700 million authorization, which spans the rest of this year through late 2026. Given where we are today, 1 month through the quarter and thinking about some of the potential restriction dates coming up, I would anticipate that the pace of purchases -- the rest of this year will come in modestly lower than the average quarter before we look to ramp it back up into 2026, obviously, subject to market conditions and how things progress throughout the fourth quarter here.

If I could just -- my follow-up would be, it would feel based on the excess capital of $500 million plus today and the ROE generation over the next 12 months, I mean you could presumably do the whole $700 million by the time it expires. That's -- I guess, part of the follow-up.

And part 2, how do we think about just net balance sheet growth because that's obviously a piece of that too from here.

Yes. On the first part, I think the answer is yes. It's presumable that we could go through the entire authorization over the course of the next 12 months when you like you said, start with the $550 million surplus and then think about the profitability profile that we anticipate moving forward with.

And I think we'll talk probably a little bit more on that second piece of it in terms of the pro forma outlook shortly.

But the answer, I think, to the first one is yes. And I'll hand it over to Clint to talk a bit about kind of the balance sheet outlook from a loan perspective.

Yes. We mentioned in our prepared remarks and actually, I think, included a new slide in the earnings presentation this time around to kind of call out the remixing that we're doing. And we had made some decent progress on that. And we have a couple of billion more of those same type of transactional multifamily loans that we want to remix off the balance sheet that came over from Pac Premier.

The good news is those are at current rates, current market rates and also have very short remaining lives. But as you see, that number is now roughly $8 billion that we'll be remixing over the next several years.

So I think that, that's going to mute bottom line loan growth. But as we've talked in the past, as we remix those into relationship-based loans that come with deposits, come with fee income opportunities that it actually should -- and generally, loans that are at a higher rate, it should result in revenue growth despite maybe bottom line net assets being flat.

Our next question comes from David Feaster of Raymond James.

Maybe first off, I was hoping we could maybe just address the elephant in the room to some degree with just the recent activist investor piece that we had, I'm sure you saw the deck, but I was hoping we could just maybe get your thoughts on that, some reactions to it to the extent that you can even comment on it.

Yes. Yes. Well, I'll start by saying we're obviously aware of the presentation. And as you know, we regularly speak with shareholders, gather their perspectives and share our perspectives as well. With that said, we don't talk about the specific conversations that we have with individual shareholders.

But because those are typically private conversations. And so in this situation, David, I really appreciate you asking this question. I want to thank you for that. I wanted somebody to ask this. I was hoping somebody would ask this because anybody who has spoken with us over the past year should know what we have been focused on.

And just to remove any doubt and for clarity, our priorities in no particular order are consistent, repeatable top-tier quarterly performance.

You've heard us say it, we call it wash, rinse, and repeat, and we just completed our seventh consecutive quarter of doing this.

Also, we've been focused on and preparing for additional capital returns. We have stated over the last several years, this is a capital return story. And that's in addition to covering our peer-leading dividend.

So meaningful buybacks are certainly a part of that, and we're very excited today that our Board approved the buyback yesterday. And then kind of the last item, I'd say Pac Premier, and I've described it as the missing piece of our franchise. You look at what it's done for us in Southern California and other markets. It's increased our density in our de novo market of Arizona.

It's added to what we have in the Northwest, that's given us another physical location in Nevada and then the different lines of businesses, it truly was the missing piece to our franchise.

And that's why I've been saying we are laser-focused on the integration. And as a result, I have 0 interest in M&A for the foreseeable future. And some of you, yourself included, David, I believe, have previously documented this in your research reports. I mean even, my wife, who I rarely see, because I'm working on delivering top-tier results and activities to enhance long-term shareholder value, knows the priorities and supports my pursuit of them.

So we've been deliberately executing a strategy to build a leading, highly profitable Western U.S. franchise, and we're pleased to have realized that goal with the closing of Pac Premier. So our work over the past 3 years is what has allowed us to announce the share repurchase, deliver the results we're delivering today, and place us as one of the top franchises in the Western U.S.

So as I look ahead, I'm confident we have the right team. We definitely have the right strategy in place to continue to deliver a high teens return on tangible equity and drive value for all our shareholders. So again, David, thank you for the question.

That's great. That's extremely helpful color. Maybe I wanted to touch on the deposit side. I believe $800 million in organic customer deposit growth in the quarter, I mean, really strong growth.

I was hoping you could maybe give us some insights into the drivers behind that. Obviously, there's some seasonality, but how much of that is client acquisition, just given your blocking and tackling go-to-market strategy as well as the recent campaigns versus deepening relationships with existing customers versus kind of that seasonality?

David, this is Tory. I'll start and then let Chris kind of chime in a bit. It was a great quarter, roughly $800 million in organic growth. It came from all different parts of the bank, a big chunk from our commercial customers and commercial bankers, a big chunk from retail just kind of throughout the company.

And we had a significant amount that was new customers to the bank. I think we said roughly 30% was new to the bank. We've had growth in our de novo offices. It's kind of -- it was spread throughout the company and very, very proud of the team and the work that they're doing in interacting with our existing customer base, taking market share, bringing new names into the company, just all the things we've been talking about for a long time is really -- continues to pick up momentum and show some great results. And Chris, you want to talk a little bit about the small [ business deposits ]?

Thanks, and thanks, David. David, Tory mentioned it in his prepared remarks, about 30% of the growth came from new customers.

We've talked about deposit campaigns in retail throughout the last year and into this year and the latest campaigns brought in to date, just a little under $180 million in new customer deposits, new customer names.

And then as Tory mentioned, the de novo markets during the quarter accounted for about $150 million. So the momentum is tremendous out there, and the bankers continue to build upon that. It's very exciting.

That's great. And then, Clint, I wanted to follow up on your response to one of Chris' last questions. There's obviously a lot of balance sheet optimization ongoing, remixing away from transactional assets to core assets, not going to have a ton of balance sheet growth.

But one of the biggest pushbacks I hear these days is basically how can you still drive earnings growth exclusive of balance sheet growth?

You touched on a couple of things. But could you maybe just elaborate that and help us think through and understand where you're able to drive that earnings growth from even with the stable balance sheet?

Yes. And that's part of why, David, again, we listen to our shareholders and our research analysts and take their feedback and try to improve the quality of our disclosure. And that's why we added that new slide in the deck that shows those transactional portfolios and what the weighted average coupon or yield is on those.

And I believe that it's about 4.1%. And so if you just think of it in terms of -- and there's obviously loans that have a higher rate and loans that are lower rate, but the portfolio in general is 4.1%.

It's been funded largely by the level of wholesale funding that we have on our balance sheet. And obviously, that's been an earnings headwind since we closed the Umpqua acquisition.

But as rates have come down now, I think, 150 basis points over the past 13 months, that earnings headwind has gotten smaller and smaller.

And with yesterday's move going forward, we would expect it to no longer be an earnings headwind and just kind of be net neutral.

But there's no other relationship. There's no deposits effectively. A few of them have some small deposit accounts.

There's not treasury management. There's not foreign exchange fees. There's no purchase card activity, any of the other ancillary products and services, they're not using our wealth management platform where we can drive fee income.

So if we remix, just figure out on a loan, one that's got a coupon of 410 into a good C&I loan today that is, call it, 8% comes with fee income opportunities is to a certain degree, self-funding and some of that operating deposits that are noninterest-bearing.

And then they're going to use all those services that the other person -- the other scenario isn't that's where you can get the revenue generation.

And that's the stuff that we're winning. That's the business that we're out there. Our bankers are winning. And I don't want to preempt Tory because he's got -- he's really excited about what they're doing. But that's that remix. And that's why we can -- we're confident we can continue to grow revenue without necessarily having earning assets grow because it's remixing into a better, more complete, comprehensive product for the bank and for our customers.

Our next question comes from Jeff Rulis of D.A. Davidson.

Great Slide 25, I appreciate it, whoever pulled that together, kudos to them. I guess, really good outlook extending out 3 years, if we could narrow that into maybe '26, right?

I guess it's kind of mid-$3 billion potentially transactionally repricing or running off.

Could you stack that against expectations on loan growth, organic production and hazard a guess for loan portfolio size end of the year?

Yes. Jeff, it's Ivan here, and thanks for the question. I did want an opportunity to provide some comments on our near-term balance sheet outlook given what's obviously a bit of a noisy quarter with the PPBI close mid-quarter.

And so I'm going to put it in the context of kind of near-term NII and NIM perspectives, and then we can kind of maybe talk about how that translates as we go throughout the course of '26.

I think we heard Ron mentioned earlier in his comments that we saw net interest margin expand this quarter to a full quarter outlook of 3.84%. For those of you doing the math on the release, we have just under $62 billion in total earning assets as of quarter end.

And as we look forward into Q4 and a little bit further into Q1, if you put those 2 numbers together, that provides what we think is a pretty good proxy for what we would project, I'm just saying 2 quarters out at this point with a few caveats.

Caveat 1 being, again, as Ron mentioned, we do expect a near-term pop in Q4 net interest income of around $12 million or 8 basis points of NIM, associated with the accretion of the CD premium associated with the close. So that's one transactional item that will pop up in Q4.

Caveat 2, we may see some earning asset declines or modest declines in the short term due to the balance sheet optimization actions we've discussed.

But with those actions that we've talked about and what you just heard from Clint, we should still expect to see modest increases in net interest margin to offset that and support what we view as stable to growing NII over the next 2 quarters from that jump-off point that I just talked about.

And then the third caveat I would get is, historically, our weakest quarter is Q1 just from a seasonality and a flows perspective on the deposit portfolio.

So you could see a little bit of weakness in Q1 relative to where we land in Q4, especially with that $12 million NII pop.

So just a bit of color commentary less around kind of the long-term loan growth outlook, but in terms of how we might think about earning assets and the NII and NIM projections.

And I'm going to hand it over to Tory to talk more about kind of how we think about the net loan growth outlook.

Jeff, this is Tory. So if we kind of take a look at the quarter itself, we had a couple of hundred million in C&I loan growth for the quarter. We had some -- which is about 5% annualized -- we got a little bit of slippage on some -- some loans from late Q3 into early Q4. We're off to, I think, a really good start in Q4.

Pipelines grew quite significantly. C&I pipeline grew about $700 million over the course of the quarter in addition to the $200 million in growth.

Production was strong at about $1.2 billion this quarter. And the momentum and growth for the C&I space, the outlook is really getting to be pretty strong and feels really good in the company.

I think to Clint's points earlier on the integration of the Pacific Premier folks, the customer base that they have, the enthusiasm, the excitement and the capabilities that we have as a balance sheet is all adding a ton of momentum to our company today and feel really pretty good about the foreseeable future on customer growth, C&I customer growth and with that kind of core deposit growth, fee income growth and then certainly C&I loan growth.

Tory, could I simplify it and just say you're capable of generating, call it, 5% annual loan growth and then we could just back against the transactional that's coming out. Is that fair?

Yes, I think that's very fair. Yes, that's definitely our target.

Perfect. And then just checking in on expenses. I think you mentioned you've got about $80 million to go on cost saves. So similar question, I guess, thinking about kind of a core growth rate in '26, either blended or a rate that's core and we could take out $80 million over the course of the year, I think Ron said clean by Q3, but any way to quantify the expense run rate, that would be helpful.

Yes. I'll take that. This is Ivan again. Yes, so we had 1 month of PPBI in our numbers, and that landed at $307 million. Our pro forma for a full quarter of PPBI, our operating expenses would have been around $375 million this quarter.

As we look forward and as you noted, we'll continue to see the cost synergies ramp up through the first half of next year. Some of that will be subsequent to some of the system integration activity, which is happening in the first quarter.

So we won't see the full post-synergy run rate until the second half of next year. In the meantime, we'd anticipate expenses, excluding CDI amortization to be approximately in the $330 million to $340 million range per quarter for the next several quarters before we start to drop back to lower levels in the tail end of next year.

CDI is going to be operating -- that amortization is going to be operating at around a $40 million clip per quarter for the next few quarters if you're looking to back into kind of a full operational expense outlook there.

Our next question comes from Matthew Clark of Piper Sandler.

Just back to the margin here in the fourth quarter, the full quarter impact of PPBI, the premium coming through in the fourth quarter, kind of a temporary bump up.

But any appetite to maybe provide a range of NIM expectations for the upcoming quarter, just to level set just to make sure we're all on the same page.

Yes. So like Ron mentioned, in Q3, we put up 3.84% on total. If we were to roll forward that $12 million of that $8 million, that puts you up to 3.90% temporarily adjusted in Q4 or just north of 3.90%, that's a fair proxy for where we think the fourth quarter is likely going to land.

So modest upside on net interest margin quarter-over-quarter, but fairly stable relative to the one that we just finalized and then a fairly similar range for Q1 2026.

And then I think as we look out beyond there, we'll provide, I think, a more holistic perspective as we get into a 2026 dialogue kind of 90 days from now, but that's probably what I would share at this point.

Yes. And Matt, the only thing I would add is Q4, especially October, we have real estate tax and income tax payments and things like that.

So we typically see a little volatility in deposits. And then obviously, first quarter is our seasonally weakest where we typically experience outflows.

So any variability in our assumptions could obviously have an impact on the number in the range that Ivan provided you. But I just wanted you to keep that in mind.

And is that -- I would have thought there's some additional accretion coming from PPBI with only 1 month this quarter and getting an additional 2 months above and beyond that, $12 million you talked about. Is that not the case?

Well, yes, you'd have the full quarter, yes, versus just 1/3 of it or 1 month's worth on the asset side. There is the deposit side that Ivan mentioned that does run out at the end of the fourth quarter, but we'll have it for the full quarter in the fourth quarter anyway.

And then just on credit, just the uptick in nonperformers on a dollar basis, any of that acquired kind of PCD loans?

A portion of it, another part of it just in a very small commercial real estate facility, which we expect to be gone next quarter. So I mean that's essentially it. It's about $20 million.

$20 million of it was not PPBI related?

About $16 million of it, I would say, is not PPBI related.

And then it looks like delinquencies are down at FinPac, which I think is a good proxy for charge-offs going forward. The bank had much lower charge-offs this quarter. I guess, how you -- any line of sight on kind of a range of net charge-offs in the near term?

Well, I've said with regard to FinPac that we're kind of at normalized levels now and bouncing along the bottom.

And so I'm pretty pleased with that. But I think that as far as a normalized run rate for charge-offs, I think for the bank, I think I'm very happy with this quarter's numbers. And I think somewhere around there would be a proxy for going forward.

And our next question comes from Jared Shaw of Barclays.

Maybe sticking just with credit, as we see that portfolio run down on Slide 25 and then get backfilled with new C&I production, how should we think about the allowance level growing from here, I guess, as you pay down or get paid off on loans that have a specific mark? Should we be thinking that, that gets back to like the 112% level over time, given a stable economic backdrop?

I think that's an accurate assessment, just kind of a slow kind of upward migration.

And then just for me on the merger charges this quarter. Is that just a pull forward of some charges? Or should we expect that the total merger costs may be a little bit higher?

We'll have additional merger expense in the next couple of quarters as we get through the system conversions in Q1, probably a little bit of a tail there. So lower amounts, obviously, in Q4 and Q1 and very little amounts thereafter.

In terms of -- in terms of from the initial expectations still holding?

Yes.

Yes. And Jared, I know that we just put the release out a short while before the call, but we also included a new slide in there that compares our assumptions at announcement for Pac Premier and our current thinking, and you'll see that our cost synergies and total deal costs are unchanged.

Our next question comes from Timur Braziler of Wells Fargo.

It looks like the PPBI contribution to the balance sheet was maybe a little bit smaller than their last reported asset size, loan size.

I guess, did you use the opportunity at close to maybe accelerate some of the outflows on the lending side? Or maybe just give us a little bit of color as to the size of that balance sheet that was brought over.

Yes. So we did sell a substantial portion of their securities portfolio and repurchased a portion of what we sold in securities that fit neatly with what we have in our existing portfolio and also positioned us for our bias towards continued decline in rates.

And also, we had some leverage that we put on early in the year just to take advantage of -- to insulate us to a small degree of rate changes while we were waiting for the approval and close.

And so from that perspective, we didn't fully reinvest. We paid down some wholesale funding. The other side of it is the timing. We closed it sooner than what we expected. And so that might be part of what you're looking at. But I'll step back and see if Ron or Ivan want to add any context.

Yes, just in terms of these transactions work you announced in April, you've got a pro forma expectation. I think if you were to go back to the pack that was issued back in -- when the deal was announced in April, loans HFI at that point was 12.0%, came in a little bit shy of that just in terms of where the balance landed on the day of close.

And then obviously, we go through and provide our marks, which are all disclosed within the packet today. So once you kind of overlay the rate and credit marks on top of that acquired loan portfolio, it's a little shy of that $12 billion number, but still in a good spot there.

And then maybe switching to deposits. You had brought up the typical seasonality that you see in 4Q, 1Q. I'm just thinking as some of that some of those balances flow out, how should we think about either replacing that with wholesale funds using the bond book? Kind of what's the balance sheet reaction to some of this expected seasonality that we're going to see on the deposit base?

So this is Chris. I'll take the first stab at it, and then Ivan and Ron can jump in. Yes, there's seasonality in that piece. But as Tory and I mentioned, we've got strong momentum of new customer acquisition, and I expect that to offset some of that outflow.

And as you saw in the earnings commentary, we'll start disclosing a bit more of that, so you can see the components and the levers that go into it and trying to separate seasonality away from what is indeed new customer acquisition. And Ron, Ivan, I don't know if you want to add anything on the wholesale part of it.

I mean there will be some fluctuations in wholesale depending -- it just depends on the amount of flows, right, within the loan and deposit portfolios.

We'll also have cash flows coming off the bond portfolio to help support some of that funding. So I think what Ivan mentioned earlier just in terms of the average earning assets with the NIM expectation in the next couple of quarters, still within range of the volatility you could see within -- based on just those wholesale flows.

We'll be maintaining spring cash targets of around $1.7 billion to $1.9 billion over that time period.

Great. And then just last for me, just maybe the contribution of accretion income in the third quarter and more specifically, if any of that was accelerated accretion from maybe some of the elevated payoff activity that we experienced here in 3Q.

Yes. A couple of quarters back, we stopped providing the accretion specific detail, and I'll give you a great case in point. So as Clint mentioned earlier, we put on some leverage back in April and restructured the bond portfolio acquired from Pac Premier here in September, the first month post close.

And with that, we bought bonds at $0.85 on the dollar, right, straight up, great bonds yielding upper 4% range. That is discount accretion. I buy at $0.85 on the dollar, but it's yield, it's government yield in most cases. So I think we should just look at the face of the financials and look at those levels over time.

So in terms of accelerated kind of credit accretion on the loan book, there wasn't abnormal....

Very minimal credit discount.

And our next question comes from Andrew Terrell of Stephens.

If I could just start just on the interest-bearing deposit beta. It looks like in the footnotes on the sensitivity, that moved down from, I think, 55% last quarter to 49% beta assumed this quarter.

I'm assuming that's mostly reflected or reflective of lower brokered deposits. Is that the case? Or has anything changed in terms of your kind of customer deposit repricing expectations for Fed cuts?

Yes. Thanks for the question. This is Ivan. No, nothing's changed in short. We'd expect interest-bearing deposit beta roughly 50%. Obviously, it's a little bit of a unique quarter for us because you have the combination of the PPBI book which when you squint at it, looks remarkably similar to the legacy deposit book that was in existence beforehand.

And then you also had the late quarter FOMC. And so not the entirety of that is fit into the end of the quarter. But as we've continued to monitor the portfolio through October, continue to see betas kind of in that 50% range. And I think Tory is going to provide some other comments on deposits here.

Thanks Ivan. Andrew, I would just say that kind of pre any Fed move, Chris and I have structured the various business lines for reductions to be very quick and responsive, proactive with the customer base, moving rates down as much as possible and as fast as possible.

And I think we've done that every single time, and we're ready for this most recent move and are implementing that in the bank today, and we will continue to do that going forward and feel very confident in our ability to lower rates as the Fed moves rates down.

Thank you for all the color. And then on the buyback, if I can go back to that. Just you guys have an earn-back tolerance on tangible book when you think about deploying capital into the buyback versus other means, I mean, I understand at the current multiple, it probably makes a lot of sense. But is there any sensitivity from a tangible earn-back standpoint?

Yes, this is Ron. This earn-back plan we've got looking out over the year with some sensitivity around the price is under 3 years. I think the bigger issue is we're pretty discounted against peers. And so this is a great buy.

Yes. And the thing I'd add to that is as we scan the horizon and look at things, our view is the greatest investment we can make is in our own stock, our own company.

And our next question comes from Jon Arfstrom of RBC.

Same sentiment there, Ron. Thanks for everything. Tory or Clint, maybe or Chris, back to you guys on the lending environment. How would you characterize the pipelines right now? Are they better, same, lower? Just what are you hearing from your borrowers?

So it's interesting. If you kind of look back to the beginning of the year, all the conversations around what rates were going to do, the tariff kind of mess.

It just -- it put people in a holding pattern. And for the first -- for Q1 and Q2, there was just a -- there was a lot of just doing nothing in pretty stagnant environment.

Interestingly, a lot of that is -- that rates have come down a little bit. The tariff noise is less noise, and you're starting to see some increase in activity on M&A activity of customers buying other businesses, some real interest in investment into their companies in the acquisition of pieces of equipment, et cetera.

So you're starting to see some good net loan opportunities for our bankers. Interestingly, we looked at production that the biggest producing parts of the company today, and it's been the Pacific Northwest and Southern California for us this past quarter.

And growth in pipelines have been across the entire franchise. So when I look at the different pipelines in the different geographies, they're kind of mixed and they're everywhere in the footprint, which is great to see.

And that to me shows that this idea of increased activity is kind of throughout at least the western part of the U.S., not in one particular industry or a couple or in one geography.

So I think as I said earlier, the C&I pipeline is up $700 million quarter-over-quarter. The real estate pipeline is flat. It's been declining over the last several quarters, but it's flat quarter-over-quarter this time. So things are looking up, which is great to see.

John, this is Chris. And I'd add to that, part of that number Tory mentioned is our investment in new bankers this year. and that's throughout the markets. A couple of them specifically, our new health care folks have a really good pipeline and started booking business.

Native American banking, the same. And there are several other C&I lenders, bankers that have come on that are doing the same thing and starting to hit their stride. So I think that's all positive momentum going forward as well.

That's helpful. Maybe, Clint, just for you. You guys have provided a lot of numbers, which I think are helpful. But curious how you think about a sustainable return on tangible for the company. Obviously, a good number this quarter. But do you feel like you can continue to crank out high teens return on tangible the way the model is today?

Yes, absolutely. Absent something breaking in the macroeconomic environment, we would expect to be where we're at or even a little bit higher and deeper into the high teens. So very optimistic about our level of performance. We track it and in many cases, have been at the top quartile.

And we think with the addition of Pac Premier and the momentum that we have that we can move into the top decile. And obviously, at 18-plus ROTCE, we're already well above our peer group, and we feel very bullish about that.

And our next question comes from Anthony Elian of JPMorgan.

Ivan, just to put a finer point on your near-term NIM comments. For 4Q, do you expect -- for 4Q, you expect just north of 3.90%, but the similar range you said for 1Q, is that relative to 3.90% or to the 3.84% you just printed?

For 1Q, from an NII perspective, normalized, we'd be in a similar spot. I think that the NIM will be probably 3.90%-ish range, maybe a tad higher, but we project earning assets just a touch lower with a couple of items going on there. So from an NII perspective, fairly stable with the exception of that $12 million deposit premium accretion that we've talked about a couple of times already.

And then my follow-up, Slide 25 on the optimization. The $8 billion of transactional loans, is that all we should think about for optimization for now? Or could there be other loans, deposits, anything on the funding side from Pac Premier that could run off or exit to further optimize the balance sheet?

No. We wanted to make sure that we captured fully so that as we go forward, there's integrity in that number. And as you see us walk that down, you'll be able to see the remix happen on a quarterly basis. So our intent is that this is the bucket.

And as the bucket empties, we will not refill it. We're very, very satisfied with virtually everything else that's on our balance sheet.

And our next question comes from Janet Lee of TD Cowen.

If I were to look at Page 13, if I do the delta between the new originations and payoffs and prepayments combined, it's about like a $500 million delta there.

In the coming quarters, should we -- should I expect that to accelerate in terms of more prepays versus new originations? Or should that narrow?

Yes, this is Tory. That's hard to answer kind of because things happened in the quarter that you're not fully anticipating.

But we did have some loans that we transferred into held for sale. So I think that's in that number there, which won't happen again for Q4.

But if you look at over the course of a year, you can get a fairly good view of just net paydowns, prepayments and payoffs relative to originations.

And the goal here for us is that, as Clint and everybody else has mentioned, we're driving core relationship growth for the company. And the idea is to add -- to take market share, add new names to the company and grow the company with new customers that would be deposits, core fee income and C&I loans.

And just to make sure that I understand your comment correctly on balance sheet optimization, is it fair to assume that like the biggest impact to loan growth total should be in 2026 and maybe in '27 and beyond, like it gets lessen if I were to just look at your schedule? Or is it more of a consistent multiyear plan?

Yes. I think when you look at the repricing and maturity schedule that we put into the material this quarter, the majority of the portfolio that we're looking at, we would anticipate working through over the next 8 quarters, 2 years.

Of course, interest rate movements could change that dynamic if we see a steeper decline in terms of the interest rate environment than what's currently anticipated some of this stuff could come into the money more rapidly.

But as of what -- given the facts and circumstances we're looking at today, I'd say it's going to be a story we'll be talking about in a process we'll be working through for the next 2 years for the most part.

And our next question comes from David Chiaverini of Jefferies.

I was curious about loan pricing. I think you mentioned 8% earlier in the call on C&I. I was curious, is 8% a good number to think about for the $700 million loan pipeline?

And could you also talk about the competitive environment for loan pricing?

Sure. David, this is Tory. New originations on the lending side are roughly between 6.5% and 8%. I think probably a weighted average this past quarter was in the low 7s.

So that's a fairly good indicator, I think, of the future for the most part. I think that the competitive environment shifts pretty quickly.

There are a lot of banks trying to generate asset growth. And so you see some pretty tight margins on some deals. And we're going to hold steady to what we think the value of our company for a customer, and we're not going to chase price.

We will be competitive. But we look at pricing very holistically. We look at the cost of deposits, we look at core fee income generated. And then obviously, we look at loan pricing all collectively to decide how we're going to approach either a current customer or a prospect to bring into the bank.

So the environment, it changes overnight, and it's always competitive. The idea is to drive value in something other than we do well every single day with the way we operate our company.

David, this is Clint. I'm glad you asked your question because I was using that as an illustrative just for math purposes of the difference between something that's at a weighted coupon of 410 and rotating into something that's more of a traditional C&I or other relationships.

And we'll continue to do CRE. And so those at a lower rate. And so depending on what it remixes into. But glad you asked the question so we could clarify that.

And our next question is a follow-up from Chris McGratty of KBW.

And don't kill me for the follow-up. I want to make sure as we get the NII, right. The 3.90%, I hear you on 3.90%, Ivan, and that includes the $12 million of NII.

But I guess, can you just give me the moving pieces one more time, the earning assets for the fourth quarter and the expected fully loaded NII and then we can make the adjustments for Q1. I just want to make sure we get it buttoned up perfect.

Yes. So we are wrapping up this quarter with total earning assets just a hair below $62 billion, so 3.84% margin for the full quarter. As we look forward to next quarter, we'd anticipate a similar level of earning assets, maybe a hair lower and landing at about 3.90%, just a hair above 3.90% from a net interest margin perspective in Q4.

And then the only adjustment for Q1 would be to pull out the $12 million that you talked about factor in, I guess, our assumptions on balance sheet. But absent the $12 million, roughly NII should be stable in Q1? I'm just trying to make sure I get the [ calculation ] right.

Yes, that's right.

I'm showing no further questions at this time. I'd like to turn it back to Jacque Bohlen for closing remarks.

Thank you, Didi. Thank you for joining this afternoon's call. Please contact me if you have any questions or would like to schedule a follow-up discussion with members of management. Have a good rest of the day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.