Q2 2026 Columbia Banking System Inc Earnings Call

July 23, 2026

Operator: Hello and welcome to Columbia Banking System Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jackie Bohlen, Investor Relations Director, to begin the call. You may begin.

Speaker #1: session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again.

Speaker #1: Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jacquelynne Bohlen, Investor Relations Director, to begin the call.

Speaker #1: You may begin.

Speaker #2: Thank you, Jacquelynne. 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 columbiabankingsystem.com.

Jacquelynne Bohlen: Thank you. Good afternoon, everyone. Thank you for joining us as we review our Q2 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.

Jackie Bohlen: Thank you. Good afternoon, everyone. Thank you for joining us as we review our Q2 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Jackie Bohlen: 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.

Speaker #3: Thank you, Jacquelynne. 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.

Clint Stein: Thank you, Jackie. Good afternoon, everyone. Our Q2 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 Q2 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.

Speaker #3: The 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.

Speaker #3: 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.

Clint Stein: While commercial loan growth offset intentional runoff in the transactional book, total loans declined during the Q2 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.

Speaker #3: We'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.

Speaker #3: 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.

Clint Stein: 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, helped 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 PacPremier acquisition. In addition, we were materially under the merger-related deal cost estimate we disclosed at announcement of the transaction.

Speaker #3: 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.

Speaker #3: Our deposit campaigns, which Chris will review in greater detail, helped 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.

Clint Stein: 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 PacPremier acquisition. In addition, we were materially under the merger-related deal cost estimate we disclosed at announcement of the transaction.

Speaker #3: 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 PacWest Premier acquisition.

Speaker #3: In addition, we were materially under the merger-related deal cost estimate we disclosed at the announcement of the transaction. I want to thank our integration team one last time for their flawless execution on this acquisition.

Clint Stein: I want to thank our integration team one last time for their flawless execution on this acquisition. With the Pacific 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 am 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Clint Stein: Given our current capital position and bullish forward outlook, we returned over $300 million to shareholders during the quarter through our regular dividend and 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 will now turn the call over to Ivan.

Speaker #3: We continue to believe that 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.

Speaker #4: 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.

Ivan Seda: Thank you, Clint, and good afternoon, everyone. As Clint highlighted, our Q2 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 Q2. On an operating basis, which excludes merger expenses and other items detailed in our non-GAAP disclosure, Q2 pre-provision net revenue and operating net income increased 30% and 36%, respectively, compared to Q2 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 Q2, coming in at the midpoint of the range I outlined in April. Continued balance sheet optimization and elevated CRE payoffs contributed to modest contraction relative to the prior quarter.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Ivan Seda: 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. 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 Q2, and when we adjust for 3 basis point impact of one-time credit-related interest reversals, as detailed on our slide, our NIM was in line with Q1. Our balance sheet optimization strategy has driven meaningful NIM 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.

Speaker #4: 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 the three basis-point impact of one-time credit-related interest reversals, as detailed on our slide, our NIM was in line with Q1.

Speaker #4: 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.

Speaker #4: 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.

Ivan Seda: 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. Non-interest income in Q2 was $88 million on a GAAP basis and $91 million on an operating basis, as detailed on slide 15. Above our guided $80 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 non-interest revenue in the mid $80 million range for Q3. Slide 16 outlines non-interest expense, which was $366 million on an operating basis.

Speaker #4: Non-interest income in the second quarter was $88 million on a GAAP basis, and $91 million on an operating basis, as detailed on slide 15. This was above our guided $80 to $85 million range, even when adjusting for a unique $3 million BOLI gain.

Speaker #4: The teams had an exceptional quarter across businesses, and we expect non-interest revenue in the mid-$80 million range for Q3. Slide 16 outlines non-interest expense, which was $366 million on an operating basis.

Speaker #4: 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.

Ivan Seda: Excluding intangible amortization of $38 million, Q2'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 non-interest expense in the $330 to 335 million range in Q3. Moving on to slide 17, provision expense was $27 million for Q2, reflecting loan portfolio runoff, credit migration trends, and modest changes in the economic forecast used in our credit models. Credit metrics remain stable and healthy.

Speaker #4: 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.

Speaker #4: Excluding CDI amortization, which will trend down slightly each quarter, we expect non-interest expense in the $330 to $335 million range in the third quarter.

Speaker #4: 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.

Speaker #4: Credit metrics remain 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.

Ivan Seda: 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 Q2, 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 30 June, 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.

Speaker #4: 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 were largely offset by strong capital generation and balance sheet optimization impacts during the quarter.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: Tangible book value increased 1% during the quarter to $19.22, despite this significant return. We expect share repurchases to remain in the $150 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.

Ivan Seda: We expect share repurchases to remain in the $150 to $200 million range for Q3 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #1: 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.

Chris Merrywell: 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 relationship-based lending as transactional loan balances continue to decline. As Clint and Ivan have noted, elevated payoffs in our non-owner occupied CRE portfolio drove net loan contraction during the quarter to $47.2 billion from $47.7 billion as of 31 March. We remain focused on relationship-based production that supports the quality of our balance sheet and consistency of earnings. Turning to deposits.

Speaker #1: 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.

Speaker #1: Commercial origination volume was up 49% from the year-ago quarter, contributing to a continued remix of our loan portfolio towards higher return relationship-based lending as transactional loan balances continued to decline.

Speaker #1: As Clint and Ivan have noted, elevated payoffs in our non-owner-occupied DRE portfolio drove net loan contraction during the quarter to 47.2 billion, from 47.7 billion as of March 31.

Speaker #1: 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 brokered deposits drove roughly two-thirds of the balance decline between March 31 and June 30.

Chris Merrywell: Intentional reductions in wholesale public and broker deposits drove roughly two-thirds of the balance decline between 31 March and 30 June. 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 Columbia. 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 four basis points from 31 March to 1.94 as of 30 June.

Speaker #1: 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.

Speaker #1: Our small business and retail deposit campaigns continue to bring new customers and deposits to Columbia. These campaigns have generated new accounts with nearly $1.5 billion year-to-date in deposits through July.

Speaker #1: 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.

Speaker #1: 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.

Chris Merrywell: We continue to invest in our franchise during Q2, 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. 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. Our balanced approach to growth is contributing to our expanding stream of customer fee income, which noticeably increased during Q1, from Q1 as new customer acquisition and a seasonal uptick in activity contribute 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Chris Merrywell: I'll now hand the call back to Clint.

Speaker #2: Thanks, Chris. I want to thank our entire team for their dedication and disciplined execution, which helped deliver our 10th consecutive quarter of stable and predictable financial performance.

Clint Stein: 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, Torry, Ivan, and Frank are with me, and we're happy to take your questions now. Didi, please open the call for Q&A.

Clint Stein: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Chris, Tori, Ivan, and Frank are with me, and we're happy to take your questions now. Dee Dee, please open the call for Q&A.

Speaker #3: Thank you. As a reminder, to ask a question, please press star one-one (*)11 on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one (*)11 again.

Operator: Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Jeff Rulis of D.A. Davidson. Your line is open.

Speaker #3: Please stand by while we compile the Q&A roster. Our first question comes from Jeff Rulas of DA Davidson. Your line is open.

Speaker #5: Thanks. Good afternoon. I wanted to maybe just try to unpack the loan. So, net loans are down a little, or $500 million. Is there a way to kind of talk about the dollar figure of what was intentional versus what you grew?

Jeff Rulis: Thanks. Good afternoon. Wanted to maybe just trying to unpack the loan. 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 you grew? Clint, I think you opened with the intentional growth was exceeded intentional runoff. CRE sort of unwanted payoffs. Do you have the dollar figures of that roughly just to kind of see the numbers?

Speaker #5: Clint, I think you opened with intentional growth was exceeded by intentional runoff, and then CRE, sort of unwanted payoffs. Do you have the dollar figures for that, roughly, just to kind of see the numbers?

Speaker #4: Yeah. Hey, I'll start and then look to others to add some color commentary. This is Ivan. Really, the way I would break it down is into three component parts.

Ivan Seda: Yeah. Hey, I'll start and then kind of look to others to add some color commentary. This is Ivan. 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 paydowns out of the transactional portfolio, kind of in the high single digit to low double-digit range month on month. 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.

Speaker #4: 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.

Speaker #4: That book declined by roughly $270 million on the quarter. So we're still continuing to see paydowns out of the transactional portfolio kind of in the high single-digit to low double-digit range.

Speaker #4: 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.

Speaker #4: So that's the transactional side of the equation. Where most of the growth was focused was in the CNI book. And when we talk about that, we're really talking about $20 billion of combined CNI and owner-occupied commercial real estate, which is what our plan has been focused on growing.

Ivan Seda: That's the transactional side of the equation.

Ivan Seda: Where most of the growth was focused was in the C&I book. 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 $250 million or slightly more than $250 million over the course of the quarter which adds on top of another positive quarter that we had in Q1 in that particular area. The piece that is the third factor there would be the commercial real estate, the core commercial real estate portfolio. That's where we're seeing significant competition emerge. 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.

Speaker #4: We grew that just around $250 million, or slightly more than $250 million, over the course of the quarter. This adds on top of another positive quarter that we had in Q1 in that particular area.

Speaker #4: 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.

Speaker #4: It feels like there'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.

Ivan Seda: That'd be the third piece of it, maybe I'll hand it to Tory to add some color commentary on the CRE book.

Speaker #4: And maybe I'll hand it to Tori to add some color commentary on the CRE book.

Speaker #2: Yeah, sure. This is Tori. So I'll just add a little bit on the CRE part of it. These are some of the payoffs that have been—I mean, it's getting pretty fluffy out there, and as you guys, Clint said early on, we're not going to change the way we underwrite or take substantial additional risk on the real estate book.

Torry Nixon: Yeah, sure. This is Tory. I'll just a little bit on the CRE part of it. These are some of the payoffs that have been. It's getting pretty floppy out there. As I guess Clint said early on, we're not going to change the way we underwrite or take substantial additional risk on the real estate book, we're not going to change price or drive price down to the floor. It just doesn't make sense for us as we run the bank. 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 competitive. While we continue to have relationships even with the folks that paid off a property or two and went someplace else, they still bank with us.

Tory Nixon: Yeah, sure. This is Tory. I'll just a little bit on the CRE part of it. These are some of the payoffs that have been. It's getting pretty floppy out there. As I guess Clint said early on, we're not going to change the way we underwrite or take substantial additional risk on the real estate book, we're not going to change price or drive price down to the floor. It just doesn't make sense for us as we run the bank. 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 competitive. While we continue to have relationships even with the folks that paid off a property or two and went someplace else, they still bank with us.

Speaker #2: 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.

Speaker #2: So there are some businesses that just got refinanced out of the company, out of the real estate group, to other banks. It's getting highly, highly competitive.

Speaker #2: And what we continue to have relationships even with the folks that paid off a property or two and went someplace else, they still bank with us.

Speaker #2: And so, I've seen some growth in our real estate pipeline today, and loan structures that we're used to having and doing, and prices that fit kind of what we're looking for.

Torry Nixon: I've seen some growth in our real estate pipeline today at loan structures that we're used to having and doing and at prices that fit what we're looking for. It's I think a little bit of a blip in the quarter. I don't really anticipate it to be the same in Q3. We're working hard to shore it up as best we can.

Tory Nixon: I've seen some growth in our real estate pipeline today at loan structures that we're used to having and doing and at prices that fit what we're looking for. It's I think a little bit of a blip in the quarter. I don't really anticipate it to be the same in Q3. We're working hard to shore it up as best we can.

Speaker #2: So it's kind of, I think, a little bit of a blip in the quarter. I don't really anticipate it to be the same in quarter three.

Speaker #2: We're working hard to shore it up as best we can.

Speaker #5: That's great. Thanks. And maybe just one follow-on. Ivan, to that slide on the next 12 months of intentional I think 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, a billion five, is what you'd target for what would be coming off out of the transactional book?

Jeff Rulis: That's great. Thanks. Maybe just one follow on, Ivan, to that slide on the next 12 months of intentional, I guess you got $3 billion to go, I suppose, or maturing. I guess if you could hazard the rest of H2 of 2026, 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?

Speaker #5: Is that fair?

Speaker #4: Yeah. Looking back over the past three quarters, when we originally put this together after the PPBI close, we've seen that portfolio decline from around $8.1 billion to the $7.3 billion that you see there.

Ivan Seda: Yeah. Looking back over the past three quarters when we originally put this together after the PPBI closed, we've seen that portfolio decline from around $8.1 billion to the $7.3 billion that you see there. Roughly three quarters of a billion dollars over three quarters. That's 9%. It's kind of that 12% to 13% run rate. Our presumption is that we'll be in that similar range for the next few quarters, call it a quarter of a 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. It depends on what happens macroeconomically, but that's our current go-forward assumption regarding the pace of pay-downs there.

Speaker #4: So roughly three quarters of a billion dollars over three quarters. That's 9%. So it's kind of that 12, 13 percent run rate. Our presumption is that we'll kind of be in that similar range for the next few quarters, kind of call it a quarter of a billion or slightly higher than that in terms of the reductions out of that portfolio.

Speaker #4: 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.

Speaker #4: And so it depends on what happens macroeconomically, but that's our current go forward assumption regarding the pace of paydowns there. The other thing that we've pointed out in the past is we've got about $3 billion of this that will reprice and/or mature.

Ivan Seda: The other thing that we've 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, the pace of that begins to slow down. 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 2025.

Speaker #4: Over the next 12 months, the pace of that begins to slow down. So, when you get out to, call it, summer of 2027, that level of repricing—and, from a growth perspective, the headwind—begins to diminish modestly in the summer of next year.

Speaker #5: Yep. Okay. Thanks for the detail. I'll step back.

Jeff Rulis: Yep. Okay. Well, thanks for the detail. I'll step back.

Speaker #1: Thank you. And our next question comes from David Chiaverini of Jefferies. Your line is open.

Operator: Thank you. Our next question comes from David Chiaverini of Jefferies. Your line is open.

Speaker #6: Hi. Thanks for taking the questions. 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.

David Chiaverini: Hi. Thanks for taking the questions. On the net interest margin, you previously were expecting to get over 4% at some point during Q2, then potentially for the full Q3. 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%?

Speaker #6: Can you talk through how we should think about Q3 and Q4 around that 4%?

Speaker #4: Yep. 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.

Ivan Seda: Yep. Happy to provide a little bit of extra color commentary on that. I'll go back to last quarter just to start. 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 that $4 million or 3 basis point headwind associated with one-time credit-related interest income reversals. Pro forma for that, we are essentially flat to the prior quarter.

Speaker #4: 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.

Speaker #4: But there are a few factors that I'd point to. First, as I noted earlier, was that $4 million, or 3 basis point headwind, associated with one-time credit-related interest income reversals.

Speaker #4: 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.

Ivan Seda: 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. That's really a function of higher macro-interest rates resulting in slower anticipated prepayment speeds on our mortgage-backed and CMO securities portfolios. Because we have those at significant discounts to par, we're accreting slightly less discount into the in-quarter results. 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. From an economic perspective, we're very pleased with where that portfolio stands.

Speaker #4: And that's really a function of higher macro interest rates resulting in slower anticipated prepayment speeds on our mortgage-back and CMO securities portfolios. And because we have those at significant discounts to par, we're accreting slightly less discount into the in-quarter results.

Speaker #4: 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.

Speaker #4: 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.

Ivan Seda: 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. 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. 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.

Speaker #4: 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.

Speaker #4: As we turn the page toward Q3, we do expect that we're going to be getting up to and beyond that 4% net interest margin.

Speaker #4: 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, and the repricing opportunity that we do have.

Speaker #4: 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.

Ivan Seda: We think that over time that does unlock opportunities, and we will continue to see optimization occur there. Those would be my comments regarding how we think about the margin going forward.

Speaker #4: So those would be my comments regarding how we're thinking about the margin going forward.

Speaker #6: 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?

David Chiaverini: Great. Very helpful. Then on deposit costs, good to see the spot deposit costs coming down in Q2. Is there much opportunity left? How should we think about deposit costs going forward?

Speaker #6: How should we think about deposit costs going forward?

Speaker #4: This is Ivan again. I'll give my perspective, and then I'll let Chris weigh in. So, you're right—I was very pleased with where we landed quarter on quarter.

Ivan Seda: This is Ivan again. I'll give my perspective, then I'll let Chris weigh in. You're right. I was very pleased with where we landed quarter on quarter. We saw another eight 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 this 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.

Speaker #4: 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.

Speaker #4: We continue to believe that 50% is a pretty fair beta. As you're modeling this out going forward, we have seen, I think, a step function shift here in the industry.

Speaker #4: 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 markets as well as CDs.

Speaker #4: 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.

Ivan Seda: I think that there's a bit of an industry-wide expectation that with rates more likely to go up than down here over the course of the next handful of months, that will translate into increased pricing pressure. My view is we probably have gotten to the point where it begins to bottom out in terms of the overall cost. We've got a lot going on to continue to maintain, as we talked about earlier, our industry-leading deposit franchise in that regard. I'll hand it over to Chris for some more color commentary.

Speaker #4: 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.

Speaker #4: And I'll hand it over to Chris for more color commentary.

Speaker #5: Thanks, Ivan. Yeah, I'd just add in there that 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.

Chris Merrywell: Thanks, Ivan. Yeah. I'd just add into there, the competition aspect of it has dramatically increased rack rates that are out in the market. We're looking at and monitoring it basically on a daily basis. As we start looking down the road of where CDs are maturing, what money markets are paying, you've got competitors who are up and over 4% again. When you back that with that loan rates really haven't gone up, and that's almost a no-win battle there. I look at the CDs that are 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.

Speaker #5: And as we start looking down the road at where CDs are maturing and what money markets are paying, you've got competitors who are up over 4% again.

Speaker #5: When you back that with loan rates, really, they haven't gone up and it's almost a no-win battle there. I look at the CDs that are maturing, and you see there's probably some upward pressure on the overall rate on those.

Speaker #5: Money markets is the same. But again, we're competing where we can. We're looking at relationships and trying to hold the lines steady. I'd agree with Ivan that we could be in a trough right now until the market itself retreats back.

Speaker #5: If it doesn't, then you could potentially start seeing some deposit costs that could start to trickle up a little bit.

Chris Merrywell: If it doesn't, you could potentially start seeing some deposit costs that could start to trickle up a little bit.

Speaker #6: Very helpful. Thank you.

David Chiaverini: Very helpful. Thank you.

Speaker #1: Thank you. And our next question comes from David Feaster of Raymond James. Your line is open.

Operator: Thank you. Our next question comes from David Feaster of Raymond James. Your line is open.

David Feaster: Hey. Good afternoon, everybody.

Speaker #7: Hey. Good afternoon, everybody.

Speaker #5: Hey, David.

Ivan Seda: Hey, David.

Speaker #7: 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 to play into this?

David Feaster: 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, does 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? Are there any other balance sheet optimization strategies that you would consider today?

Speaker #7: Just given irrational pricing expectations, does that create an 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?

Speaker #7: I know for a while it didn't make sense, but I'm curious—does that make sense today, or are there any other balance sheet optimization strategies that you would consider today?

Speaker #4: Yeah, this is Ivan. Hey, David, it's a great question. We do continue to look at that every single quarter, and the dynamics do shift a little bit.

Ivan Seda: Yeah. This is Ivan. Hey, David. It's a great question. We do continue to look at that every single quarter. 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 one that we've been going down, which has quarter on quarter on quarter continued to allow us to remix. I quoted a number that is one that we talk about. We're excited that we've gone to and beyond the 40% of our loan portfolio that's in C&I and/or occupied. We continue to see that trickle through there.

Speaker #4: It is a competitive market in commercial real estate, so there has been increasing demand. I know you're likely seeing that in other peer bank discussions as well, and in HA data and other sources like that.

Speaker #4: We looked at it again this quarter. We continue to believe, and feel, that our best path forward is to continue on the one that we've been going down, which has, quarter on quarter on quarter, continued to allow us to remix.

Speaker #4: I quoted a number that is one that we talk about. We're excited that we've gone to and beyond the 40% of our loan portfolio.

Speaker #4: That's in CNI and owner-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 a creative from a shareholder perspective.

Ivan Seda: 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.

Speaker #7: 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 of months.

David Feaster: Okay. That makes sense. 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?

Speaker #7: Seemingly, you've had a lot of success attracting talent. I'm curious, regarding your appetite for hires today, are there any markets or business lines that you're most focused on adding to at this point?

Speaker #5: Hey, David. This is Torrey. 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 accreted to the company in each and every market.

Torry Nixon: Hey, David, this is Torry. I'll start. 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. We built this franchise, 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. We've seen a lot of the latter here recently. Of note, I think we've hired some really good bankers, a couple additional really good bankers in the Pacific Northwest, in Seattle area, in Portland. We've hired some good bankers in Utah. We started a food franchise business that hired a couple leaders, they've had some infill with a couple outstanding bankers there.

Tory Nixon: Hey, David, this is Tory. I'll start. 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. We built this franchise, 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. We've seen a lot of the latter here recently. Of note, I think we've hired some really good bankers, a couple additional really good bankers in the Pacific Northwest, in Seattle area, in Portland. We've hired some good bankers in Utah. We started a food franchise business that hired a couple leaders, they've had some infill with a couple outstanding bankers there.

Speaker #5: 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.

Speaker #5: And we've seen a lot of the latter here recently. Of note, I think we've hired a couple of additional really good bankers in the Pacific Northwest, in the Seattle area and in Portland.

Speaker #5: We've 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.

Speaker #5: 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 in right away.

Torry Nixon: 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, there's a specialization there, or it's a geography-based play, they're very connected in their communities, they're bringing business in right away. It's been great to see, we're continuing to look for them.

Tory Nixon: 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, there's a specialization there, or it's a geography-based play, they're very connected in their communities, they're bringing business in right away. It's been great to see, we're continuing to look for them.

Speaker #5: So, it's been great to see, and we're continuing to look for them.

Speaker #4: Yeah. And I gave it 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.

Chris Merrywell: Yeah. I'd add, David, on the wealth side, previously we've talked about we want to be full service in every market that we're in, we're still looking for talent in those space. We've got a few people that have joined us just recently. A few more in the hopper always focused on the newer markets as well, as far as deepening that into the markets of California and such.

Speaker #4: We've got a few people that have joined us just recently, a few more in the hopper, and we're always focused on the newer markets, as well as deepening into the markets of California and such.

David Feaster: Good. Okay.

Speaker #5: Okay. 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 he oversaw most of the Western US in credit from one of the big-box banks.

Torry Nixon: 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, he oversaw kind of most of the Western US in credit from one of the big box banks. We talk about getting better every day, and continuing to get more efficient in everything that we do. We have people that are joining us that are helping us in things that you never hear about or never see, but removes friction for our bankers, removes friction for our customers. It's throughout the entire organization that we're adding that kind of talent.

Tory Nixon: 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, he oversaw kind of most of the Western US in credit from one of the big box banks. We talk about getting better every day, and continuing to get more efficient in everything that we do. We have people that are joining us that are helping us in things that you never hear about or never see, but removes friction for our bankers, removes friction for our customers. It's throughout the entire organization that we're adding that kind of talent.

Speaker #5: And we talk about getting better every day and continuing 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.

Speaker #5: Remove friction for our customers, so it's throughout the entire organization that we're adding that kind of talent.

David Feaster: That's great. If I could squeeze one quick one more in, maybe for you, Clint. It's interesting. I talk to a lot of investors, the narrative has shifted. 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, what's your appetite for another deal at this point with that deal done?

Speaker #7: That's great. If I could squeeze one quick one more in, maybe for you, Clint. I mean, it's interesting. I talked to a lot of investors and the narrative has shifted.

Speaker #7: For a while, the narrative was that they can't grow earnings without growing the balance sheet. I think you guys have obviously proved that wrong.

Speaker #7: 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.

Speaker #7: 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?

Speaker #5: Well, it's a fair question. And I could be brief and say nothing has changed. But I'll—we have time—I'll go on a little bit.

Torry Nixon: Well, it's a fair question, I could be brief and say nothing has changed. We have time, I'll go on a little bit. Still have zero interest in 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. As we look now at the markets we serve, the momentum that you've heard the team talk about that we have, are 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, we have as much as we want or need. We have top 5 market share in the Northwest, I think top 10 in California. We have a formula that works on the de novo markets.

Tory Nixon: Well, it's a fair question, I could be brief and say nothing has changed. We have time, I'll go on a little bit. Still have zero interest in 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. As we look now at the markets we serve, the momentum that you've heard the team talk about that we have, are 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, we have as much as we want or need. We have top 5 market share in the Northwest, I think top 10 in California. We have a formula that works on the de novo markets.

Speaker #5: We'll have zero interest in whole bank M&A. As I've said for the past five quarters, PAC Premier was the missing piece to the franchise that we envisioned.

Speaker #5: And as we look now at the markets we serve, and 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—there's—the West has been pretty much consolidated, I'd say, with the exception of Washington and California.

Speaker #5: And we have as much as we want or need. We have top five market share in the Northwest, and I think we're top 10 in California.

Speaker #5: So, we have a formula that works in the de novo markets. As we see them hit their full stride and build on the momentum they have, last week we held the grand opening for our Colorado Springs branch that just opened a few weeks ago.

Torry Nixon: 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's already at $80 million in deposits. Our investments in Utah continue to generate meaningful new customers. 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. I put 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, we intend to keep doing that for the foreseeable future. Ivan talked about our current capital levels, you all have projected what our profitability is going to be.

Tory Nixon: 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's already at $80 million in deposits. Our investments in Utah continue to generate meaningful new customers. 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. I put 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, we intend to keep doing that for the foreseeable future. Ivan talked about our current capital levels, you all have projected what our profitability is going to be.

Speaker #5: It's already at $80 million in deposits. Our investments in Utah continue to generate meaningful new customers. And the three locations that Pac Premier brought us in Arizona have pretty much built out the infrastructure that we need in that market to continue to grow and execute on our Main Street, commercial-first business model.

Speaker #5: And I put 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.

Speaker #5: And we intend to keep doing that for the foreseeable future. Ivan talked about our current capital levels, and you all have projected what our profitability is going to be.

Speaker #5: And so you can see that, barring some major reset in the macro environment that we can't control, we're going to have the capacity to keep that going.

Torry Nixon: 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.

Tory Nixon: 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.

Speaker #5: 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.

Speaker #5: And some of the irrationality that we're seeing in the pricing there. So I guess if I had 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.

Clint Stein: 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. Certainly not interested in whole bank M&A or anything that would increase our share count. We've worked hard for the past five 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.

Speaker #5: But certainly not interested in whole bank M&A, or anything that would increase our share count. We've worked hard for the past five years. We've been in a state of planning, integrating, and transforming our company.

Speaker #5: 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.

Speaker #7: That's great. Thanks, everybody.

David Feaster: That's great. Thanks, everybody.

Speaker #5: Thanks, David.

Clint Stein: Thanks, David.

Speaker #1: Thank you. And our next question comes from Matthew Clark of Piper Sandler. Your line is open.

Operator: Thank you. Our next question comes from Matthew Clark of Piper Sandler. Your line is open.

Speaker #8: Hey, good afternoon, everyone. 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.

Matthew Clark: Hey, good afternoon, everyone. 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 you'll be unwinding those borrowings here in short order? Assume that would help the margin.

Speaker #8: Fair to assume that you'll be unwinding those borrowings here in short order. I assume that would help the margin.

Speaker #4: Yep, absolutely. We do that daily and weekly. We have continued to optimize our funding stack. When I think about our wholesale funding, the FHLB, the brokered CD portfolio, as well as a component of that more wholesale public channel.

Ivan Seda: Yep, absolutely. We do that daily, weekly. We have continued to optimize our funding stack. When I think about our wholesale funding, FHLB, the broker CD portfolio, as well as a component of that kind of more wholesale public channel. We've continued to optimize that, and that'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. We keep, in particular, the FHLB advances very short duration. We've got I think $1 billion and seven plus of that that advances mature any given month. The answer is yes. We'll continue to optimize that as the core deposit business builds back up.

Speaker #4: And so we've continued to optimize that, and that'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 a $200 million swing on an ending basis.

Speaker #4: But we keep, in particular, the FHLB advances very short in duration. And so we've got, I think, $1.7 billion plus of those advances maturing any given month.

Speaker #4: So the answer is yes, we'll continue to optimize that as the core deposit business builds back up.

Speaker #8: Got it. And then, just on average earning assets, should we assume the bottom is here in Q3, or do you think we already saw the bottom?

Matthew Clark: Got it. Just on average earning assets, should we assume the bottom is here in Q3, or do you think we already saw the bottom?

Ivan Seda: 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 that commercial real estate market, building pipeline and lending. There has been an increase in terms of the prepayment volumes that we're seeing in that space. I would signal you kind of flat to down from an overall earning asset perspective as we look out to Q3.

Speaker #4: That'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.

Speaker #4: I think we've put a lot of focus on the continued growth in C&I and owner-occupied commercial real estate. We are very active in that commercial real estate market, building pipeline and lending.

Speaker #4: 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.

Speaker #8: Okay. Great. Thank you.

Matthew Clark: Okay, great. Thank you.

Speaker #1: Thank you. And our next question comes from Chris McGrady of KBW. Your line is open.

Operator: Thank you. Our next question comes from Chris McGratty of KBW. Your line is open.

Speaker #3: Oh, great. Thanks. I don't think we touched on credit. I feel like I have to ask a credit question. Feels pretty good. Anything incremental that you're watching in the book? NDFI got a lot of attention for the industry.

Chris McGratty: Oh, great. Thanks. I don't think it 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? I know ADFI got a lot of attention for the industry a couple of quarters back. Just anything that you're re-underwriting given high rates. Thanks.

Speaker #3: A couple of quarters back. But just anything that you're re-underwriting, given higher rates. Thanks.

Speaker #5: Yeah. I mean, Chris, really the only thing that continues for us—and it's been here over the past couple of quarters—it's kind of like Groundhog Day, right?

Frank Namdar: Yeah. Chris, really the only thing that really continues for us, here over the past couple of quarters, it's kind of like Groundhog Day, right? It's ag. 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 crops, that probability of default is really pretty much in line with the past four quarters. That tells me that things are starting to stabilize a little bit. We see grades there. That's really the one area that I continue to keep a close eye on. We've got a real close eye on the smaller borrowers, SBA, small business. Those are still holding in pretty nicely. I feel really good about the portfolio right now.

Speaker #5: I mean, so it's ag. But we are seeing some improvement, actually, in ag. If you look at the weighted average probability of default of the ag portfolio...

Speaker #5: If you strip out crops, that probability of default is really pretty much in line with the past four quarters, so that tells me that things are starting to stabilize a little bit.

Speaker #5: We've seen raise there, and that's a close eye on—I mean, we've got a real close eye on the smaller borrowers, SBA, the small business.

Speaker #5: But those are still holding in pretty nicely. I feel really good about the portfolio right now, sleeping pretty well at night.

Chris McGratty: Okay.

Frank Namdar: Sleeping pretty well at night.

Speaker #3: Okay, I think the rest of my questions were asked. Thank you.

Chris McGratty: Okay. I think the rest of my questions are asked. Thank you.

Speaker #5: Thanks, Chris.

Frank Namdar: Thanks, Chris.

Speaker #1: Thank you. And our next question comes from Jared Shaw of Barclays. Your line is open.

Operator: Thank you. Our next question comes from Jared Shaw of Barclays. Your line is open.

Speaker #7: Hey, everybody. Thanks. 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?

Jared Shaw: Hey, everybody. Thanks. I guess first, thanks for the PAA update from the security side on slide 13. Was there any impact to margin from accelerated payoffs that we should consider as well on the loan side?

Speaker #7: On the loan side?

Ivan Seda: No, nothing. That part of it's been very, very stable. I do want to point out one thing. The yield piece that I talked about, there is some small amount of that which is from the PPBI securities portfolio that was acquired. The vast majority of that is just pure discount accretion. It's been securities that we've purchased on the open market at discounts to par. The majority 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 open market transactions. Probably an accounting guy's nuance there, but couldn't help myself. Yeah, we do think that'll, like a rubber band, 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.

Speaker #4: No, nothing. That part of it has been very, very stable. I do want to point out one 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.

Speaker #4: But the vast majority of that is just pure discount accretion. It's been securities that we've purchased on the open market at discounts to par.

Speaker #4: So, the majority 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.

Speaker #4: It's more just kind of open market transactions. Probably an accounting guy's nuance there. But couldn't help myself. And so yeah, we do think that'll kind of a rubber band kind of snap back in future quarters to where it's been.

Speaker #4: 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 marked loan.

Ivan Seda: The last time we called one out would've been Q4, where we had an outsized payoff of a marked loan. Really, it's been like clockwork since then. There really hasn't been a whole lot of volatility in regard to that.

Speaker #4: 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.

Speaker #7: Okay. All right. And then, are you generally still buying, or are your new purchases still at a discount?

Jared Shaw: Okay. All right. Thanks. Are your new purchases still at a discount?

Speaker #4: Yes. Yeah. For the most part, we bought I want to say 475 million dollars worth of securities in the second quarter. The coupon on that stuff is roughly 80 basis points higher than what we've been purchasing.

Ivan Seda: Yes. For the most part. We bought, I want to say $475 million worth of securities in Q2. 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. We did shorten the duration in terms of the purchases that we did during Q2. That was, I think, purchased at a 2.6 year duration, which is obviously south of the back book in regard to that. On an amortized cost basis, the portfolio grew a little bit quarter on quarter, and that really was just refilling the bucket.

Speaker #4: You probably won't see it, as it blends in. It barely moves the needle in terms of the overall securities portfolio. But we did shorten the duration in terms of the purchases that we made during Q2.

Speaker #4: 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.

Speaker #4: Quarter on quarter. And that really was just kind of refilling the bucket. We’d seen it kind of just move down a little bit in Q4 and Q1.

Ivan Seda: We'd seen it just move down a little bit in Q4 and Q1, not really any big intentional strategic shift or reallocation of capital into the securities book or anything like that. More just refilling the bucket and doing so at rates that we were really pleased about from a securities portfolio purchase perspective.

Speaker #4: So, not really any big intentional strategic shift or reallocation of capital into the securities book or anything like that—more just kind of refilling the bucket, and doing so at rates that we were really pleased about from a securities portfolio purchase perspective.

Speaker #7: Okay. All right. Thanks. And then just on the CRE side, just trying to, I guess, reconcile the answers to sort of Jeff and Matt's questions.

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

Speaker #7: And then your discussion around just sort of a frothy market—so should we assume that you are able or want to retain more of that CRE that's coming due going forward? Is that the right way to think about that?

Speaker #7: And that you're willing, I guess, to take that lower pricing on that? Or how should we think about the frothy market, your lack of interest in those pricings, but also the loans that are coming due?

Speaker #3: Yeah, 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.

Torry Nixon: Yeah. This is Torry. A couple 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. I think either way is fine, as far as we're concerned on that, but that's the transactional piece. On the other more relationship piece, we won't jeopardize credit quality, and we won't chase price to the floor. 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. It's a little bit of blocking and tackling of just maintaining credit culture and negotiating wisely and getting the highest rate that we can that makes sense for our customers and for the bank.

Tory Nixon: Yeah. This is Tory. A couple 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. I think either way is fine, as far as we're concerned on that, but that's the transactional piece. On the other more relationship piece, we won't jeopardize credit quality, and we won't chase price to the floor. 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. It's a little bit of blocking and tackling of just maintaining credit culture and negotiating wisely and getting the highest rate that we can that makes sense for our customers and for the bank.

Speaker #3: And they'll go elsewhere, and 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, 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.

Speaker #3: And so it's a little bit of kind of blocking and tackling of just maintaining credit culture and negotiating wisely and getting as the highest rate that we can that makes sense for our customers and for the bank.

Speaker #3: 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 the loan pipeline itself, for the bank, is pretty phenomenal.

Torry Nixon: As I said, we've got some growth in the CRE pipeline already. I would want to jump in here and add that in the pipeline, the loan pipeline itself for the bank is pretty phenomenal. 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 you've heard there's tremendous emphasis for us. Of the $4 billion, about $2.6 of it comes out of the commercial banking business, and that compares to $1.2 a year ago. Some really nice pipeline growth, mostly on the C&I side, which is what we're trying to do. As of late, a little bit on the real estate side.

Tory Nixon: As I said, we've got some growth in the CRE pipeline already. I would want to jump in here and add that in the pipeline, the loan pipeline itself for the bank is pretty phenomenal. 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 you've heard there's tremendous emphasis for us. Of the $4 billion, about $2.6 of it comes out of the commercial banking business, and that compares to $1.2 a year ago. Some really nice pipeline growth, mostly on the C&I side, which is what we're trying to do. As of late, a little bit on the real estate side.

Speaker #3: We have, I think, our total pipeline today at just under $4 billion, and that compares to about $2 billion a year ago—specifically in the commercial banking business.

Speaker #3: So on the C&I side, which is where, as you’ve obviously heard, there’s tremendous emphasis for us—out of the $4 billion, about $2.6 billion of it comes out of the commercial banking business.

Speaker #3: 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.

Speaker #3: And then, as of late, a little bit on the real estate side.

Speaker #4: And I just wanted to clarify one thing. Maybe I was not clear in my response to one of David's questions. This was really regarding the transactional component of our balance sheet.

Ivan Seda: 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. Of the transactional loans we have, roughly $5.4 billion of that is commercial real estate, either multifamily or non-owner 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? We look at that every quarter.

Speaker #4: And of the transactional loans we have, roughly $5.4 billion of that is commercial real estate—either multifamily or non-owner occupied. We are not originating more transactional loans where we don't have a relationship with the end borrower.

Speaker #4: 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 that every quarter."

Speaker #4: We continue to feel that, in terms of driving value to shareholders, that's not the way to do it. I think that you would diminish tangible book value by executing that trade.

Ivan Seda: We continue to feel that in terms of driving value to shareholders, that 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. 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #7: Great. Thanks a lot.

Jared Shaw: Great. Thanks a lot.

Speaker #2: Thank you. And our next question comes from Janet Lee of TVCal, and your line is open.

Operator: Thank you. Our next question comes from Janet Lee of TD Cowen. Your line is open.

Speaker #5: Good afternoon. On fees, you screen, I mean, in terms of the revenue composition, you drive more of your revenue from NII and less so from fee income versus peers.

Janet Lee: Good afternoon. On fees, 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 are 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 Q3?

Speaker #5: 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 levels?

Speaker #5: I appreciate the mid-$80 million near-term guide, but how should we think about the growth trajectory there beyond the third quarter?

Speaker #3: 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. There's a lot of fun in this business, and we're actually seeing it again, which is great.

Torry Nixon: Janet, this is Torry. I will give you some of the details, and I will let Ivan, if he wants to add in on top of that. You are 100% right. There is a lot of fun in this business, and we are actually seeing it again, which is great. There has been a tremendous growth trajectory on the fee income side of the house for the bank. It is coming from all parts of the company. Year-over-year, our treasury management business is up just under 9%. 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. Those things that are really solidly connected to customers, there is a tremendous growth trajectory.

Tory Nixon: Janet, this is Tory. I will give you some of the details, and I will let Ivan, if he wants to add in on top of that. You are 100% right. There is a lot of fun in this business, and we are actually seeing it again, which is great. There has been a tremendous growth trajectory on the fee income side of the house for the bank. It is coming from all parts of the company. Year-over-year, our treasury management business is up just under 9%. 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. Those things that are really solidly connected to customers, there is a tremendous growth trajectory.

Speaker #3: There's been a tremendous growth trajectory on the fee income side of the house for the bank, and it's coming from all parts of the company.

Speaker #3: Year over year, our treasury management business is up just under 9%. Our international banking business is up 9.5% year over year. Commercial card is up 9.5% year over year.

Speaker #3: 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.

Torry Nixon: 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 combined wealth business had a record-setting quarter in Q2. Their momentum has carried forward into July, and we think that it'll just kind of continue. On the fee side, just individually at the unit level, we've got solid pipeline, healthy activity, and a lot of good growth. I think it's a great story for us on the fee income side.

Tory Nixon: 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 combined wealth business had a record-setting quarter in Q2. Their momentum has carried forward into July, and we think that it'll just kind of continue. On the fee side, just individually at the unit level, we've got solid pipeline, healthy activity, and a lot of good growth. I think it's a great story for us on the fee income side.

Speaker #3: 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—had a record-setting quarter in Q2.

Speaker #3: And their momentum has carried forward into July, and we think that they'll just kind of continue. So on the fee side, just individually at the unit level, we've got a solid pipeline, healthy activity, and a lot of good growth.

Speaker #3: So, I think it's a great story for us on the fee income side.

Speaker #5: Is mid-single-digit growth the right rate for you?

Janet Lee: Is the mid-single digit kind of growth the right rate for you?

Speaker #4: That's probably right. I think if you were to look back at the last handful of quarters—this is Ivan—we've probably been outperforming that a little bit.

Ivan Seda: 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. My favorite way to look at it, I think everyone's got their preferred analytical lens, is looking at the non-interest revenue as a function of the size of the bank, right? On an average assets basis. As I look back to a year ago, prior to PPBI, prior to some of the optimization, and then just the core growth and relationships, we were somewhere in the high 40 basis point type range. This quarter, we reached 55 basis points. 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.

Speaker #4: One of my favorite ways to look at it—and I think everyone’s got their preferred analytical lens—is looking at the non-interest revenue as a function of the size of the bank, right?

Speaker #4: So, on an average assets basis, as I look back to a year ago—prior to PPBI, prior to some of the optimization, and then just the core growth and relationships—we were somewhere in the high 40 basis point type range.

Speaker #4: 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.

Speaker #4: 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, which will grow NII over time as well.

Ivan Seda: 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. I think you're in the right ballpark in terms of how you're thinking about modeling that out going forward.

Speaker #4: So I think you're in the right ballpark in terms of how you're thinking about modeling that out going forward.

Speaker #5: Got it. And if I can just squeeze in one more on expenses—the $330 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?

Janet Lee: Got it. If I can just squeeze in one more on expenses, the $330 to $335 million range in Q3. Is that the ballpark range that we should be expecting for Q4? 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?

Speaker #4: Yeah. To the first question of the two, I would say absolutely. Clint said it earlier, but I'll reiterate it. A great callout 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.

Ivan Seda: Yeah. To the first question of the two, I would say absolutely. 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 Q1 of the year. That really allowed us to turn our focus into 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. After doing the PPBI 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.

Speaker #4: And that really allowed us to turn our focus to ensuring that we were very focused on the opportunities around the cost synergies, like we talked about earlier.

Speaker #4: 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.

Speaker #4: And after doing the PPBI deal and the MOE from several years ago, and having the opportunity to take a breath and focus on internal processes, we are driving optimization and efficiencies throughout the course of the bank.

Ivan Seda: Honestly, that's what you're seeing in H1 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. Maybe write that one 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 and where things are going and the pace of reinvestment, some of the things that Chris was able to highlight earlier as well. That's how I would frame that one up.

Speaker #4: 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.

Speaker #4: I would ballpark 2% as kind of a level of normalized growth as you go beyond that. But maybe write that one 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 and where things are going.

Speaker #4: 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.

Speaker #5: Thank you. Thank you. And our next question comes from Tamar Braziller of UBS. Your line is open.

Janet Lee: Thank you.

Operator: Thank you. Our next question comes from Timur Braziler of UBS. Your line is open.

Timur Braziler: Hi. Good afternoon. Do you need to see payoff activities start to abate before you start seeing net loan growth again? 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? Is that what's ultimately needed to restart the NII growth engine?

Speaker #6: Hi, good afternoon. 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?

Speaker #6: And is that what's ultimately needed to restart the NII growth engine?

Speaker #4: Yeah, 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.

Ivan Seda: Yeah, 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, as you're looking at things on a net growth basis, obviously, I alluded to nearly a $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. 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.

Speaker #4: We've talked about the transactional portfolio. And so, as you're looking at things on a net growth basis, obviously, I alluded to nearly $1 billion worth of reduction in that portfolio over the last three quarters.

Speaker #4: 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.

Speaker #4: We've got $3 billion more that's maturing over the next several quarters, which gives us an opportunity to recycle that capital—currently locked into low to mid-4% yielding assets—into more productive lending opportunities.

Ivan Seda: We've got $3 billion more that's maturing over the next 12 months, 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. That volume really is coming in the form of C&I and owner-occupied commercial real estate. It's been in the arena of where we want it to be. 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: I think we were talking earlier, from Matthew's question, about 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 Crystal will kind of speak more to the deposit side.

Ivan Seda: 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. Maybe Chris will speak more to the deposit side.

Speaker #6: Yeah, thanks, Evan. We don't look at it as growing deposits just to always fund loans. A deposit-only customer is really valuable to the bank, and they have great relationships.

Chris Merrywell: Thanks, Ivan. We don't look at it as growing deposits to always just fund loans. I mean, a deposit-only customer's really valuable to the bank, and they 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. No, we're always interested in growing the deposit base.

Speaker #6: If you end up with the operating accounts, then that turns around and drives into the fee income areas for us. The fact that we're holding loans steady or slightly down does allow us to hold the line on some of that pricing, and we may be able to maintain our discipline there.

Speaker #6: But we're always interested in growing the deposit base. Thanks for that. And then, Clint, maybe one for you. You had called out a 19.5% illustrative ROTCE for '26 when you announced the PPBI deal.

Timur Braziler: Thanks for that. Then Clint, maybe one for you. You had called out on 19.5% illustrative ROTCE for 2026 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? Maybe talk us through the right way to think about profitability goals going forward.

Speaker #6: I guess, in doing a postmortem over the past year, what's been the biggest headwind to achieving that target? And maybe talk us through the right way to think about profitability goals going forward.

Speaker #4: Hey, 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.

Ivan Seda: Hey, it's Ivan. I'll take a first crack at that. Look, I think we're on a trajectory for very positive ROTCE levels. I think you see an increase this quarter relative to last quarter of roughly 1%. We're at 16% ROTCE. We're operating at a level from a capital base perspective that is above and beyond what we think we need to efficiently operate the bank. 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.

Speaker #4: 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.

Speaker #4: We're working through that process in terms of that excess capital. And I think we've 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.

Ivan Seda: We're working through that process in terms of that excess capital, 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 billion of capital to shareholders over the course of 12 months. That's how I would view it. These processes take time in terms of the balance sheet optimization and the shift in mix. 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.

Speaker #4: So that's how I would view it. These processes take time in terms of the balance sheet optimization and the shift in mix. 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.

Speaker #6: Yeah. And the one thing that I'll add specific to the 19% ROTC target, Ivan mentioned 16% here in the second quarter. Just what, I guess, a little over three quarters in three, four quarters into the close of the acquisition.

Clint Stein: Yeah, the one thing that I'll add specific to the 19% ROTCE target. Ivan mentioned 16% here in Q2, just, what, I guess a little over three quarters in, three full quarters into the close of the acquisition. You also have to remember back or think back to our starting capital when we closed the PacPremier 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. 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. Even then, we're still running today after returning $500 million roughly of share repurchases.

Speaker #6: But you also have to remember, or think back to our starting capital when we closed the PAC Premier deal—it was higher. The amount of capital that they brought in, and the marks, meant we started with more capital than what we had in the model when we put that 19% ROTC out there.

Speaker #6: 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.

Speaker #6: 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 returned over that time period.

Chris Merrywell: Our quarterly dividend was at about $800 million of capital return over that time period. We're still north of 13% total risk-based capital, 86 or something like that on TCE. 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 five years ago with the Umpqua deal. We said that PacPremier would enhance that. That'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. Hopefully that helps you.

Speaker #6: 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.

Speaker #6: And we're going to be a capital return story. We said that five years ago with the Umpqua deal, and we said that PacWest Premier would enhance that.

Speaker #6: And so that'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 we're going to continue to be in the market repurchasing our shares, investing into our company for the foreseeable future.

Speaker #6: So, hopefully, that helps you. Great. Thanks for that, caller.

Timur Braziler: Great. Thanks for that color.

Speaker #1: Thank you. Our next question comes from Anthony Ellian of JPMorgan. Your line is open.

Operator: Thank you. Our next question comes from Anthony Elian of JPMorgan. Your line is open.

Speaker #7: Hi, everyone. On deposits, you noted you are starting to see balances expand so far in July. Could you size up the magnitude of the rebound in Q3 and Q4 you expect?

Anthony Elian: Hi, everyone. On deposits, you noted you started to see balances expand so far in July. Could you size up the magnitude of the rebound in Q3 and Q4 you expect, just given the H2 of last year was muddied from the deal?

Speaker #7: Just give me the second half of last year. It was muddied from the deal.

Ivan Seda: 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. 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 brokerage 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 PacPremier accounts, specifically in higher-cost CD portfolios alongside the normal seasonal flows that we get every April. We're extremely pleased with what we've seen so far in July, starting to see that rebound back up in that regard. I don't know if I want to ballpark a specific number other than full-year outlook in that low single-digit range.

Speaker #4: I'd say, on a full-year basis, we're 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.

Speaker #4: The vast majority of the movement we've had in deposits, 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, and in higher-cost CD portfolios.

Speaker #4: 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.

Speaker #4: But I don't know if I want to ballpark a specific number, other than kind of a full-year outlook in that low single-digit range.

Speaker #6: Yeah. Anthony, this is Chris. I'll 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.

Chris Merrywell: Yeah, Anthony, this is Chris. I just repeat 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, you could drive that number a little bit higher. The fact of keeping loans flat to down slightly, we're able to keep the discipline and keep our cost of deposits down. I think what Ivan stated in that low single digits is the right place to think about it.

Speaker #6: You could drive that number a little bit higher. And the fact of keeping loans flat to down slightly, we're able to keep the discipline and keep our cost of deposits down.

Speaker #6: And so, I think what Ivan stated—'in that low single digits'—is the right place to think about it.

Speaker #7: Okay. And then on NIM, following up on a previous question, do you expect Q3 to get up to and beyond 4% for the quarterly average of what you'll print for Q3, or on a spot basis on a particular day during the quarter?

Anthony Elian: Okay. Then on NIM, following up on a previous question, do you expect Q3 to get up to and beyond 4% for the quarterly average of what you'll print for Q3 or on a spot basis on a particular day during this quarter? Thank you.

Speaker #7: Thank you.

Speaker #4: The former.

Ivan Seda: The former.

Speaker #7: Clear. Thank you.

Anthony Elian: Clear. Thank you.

Speaker #1: Thank you. And our next question comes from Andrew Terrell of Stevens. Your line is open.

Operator: Thank you. Our next question comes from Andrew Terrell of Stephens. Your line is open.

Speaker #8: Hey, good afternoon. I just want to follow up on the securities yield. Can you help us understand? I guess I know that the prepay assumption can move this around a bit, quarter to quarter.

Andrew Terrell: Hey, good afternoon.

Ivan Seda: Afternoon.

Andrew Terrell: I just had a follow-up on the securities yield. Can you help us understand? I guess I know that the prepay assumption can move this around a bit quarter-to-quarter. If we just assume rates are flat throughout Q3, does the securities yield rebound to that kind of 420-ish type level, or do you need to see rates go back down to get securities yields back up?

Speaker #8: But if we just assume rates are flat throughout the third quarter, does the securities yield rebound to that kind of 4.20%-ish type level? Or do you need to see rates go back down to get the securities yield back up?

Speaker #4: No. 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.

Ivan Seda: No. Obviously there's 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. It kind of depends on how the curve shifts over the course of the quarter, at what pace and at what tenors. Generally, the simplified version of that would be assuming it stays steady over the course of the quarter, we should not see that as a continued headwind. It really was a function of whatever it was, 40 or 50 basis points shift in rates that we saw over the course of Q2. That's the simplified way I would frame that up.

Speaker #4: 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, the simplified version of that would be: assuming it stays steady over the course of the quarter, we should not see that as a continual, continued headwind.

Speaker #4: It really was a function of the, whatever it was, 40- or 50-basis-point shift in rates that we saw over the course of Q2.

Speaker #4: So, that's the simplified way I would frame that up.

Speaker #8: Okay, great. No, that's helpful. I appreciate it. And then actually, just last one—Ivan, I think you mentioned something in the prepared remarks to the tune of, outside of buybacks, continuing to look at ways to optimize the capital stack.

Andrew Terrell: Okay. Great. No, that's helpful. I appreciate it. 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 in reference to just the mix change on loan growth expected? Could you maybe unpack that a little bit more?

Speaker #8: Was that in reference to just the mix change on loan growth expected, or could you maybe unpack that a little bit more?

Speaker #4: No, I think that for the last three quarters—so, following the close of Pacific Premier—we were excited to announce our share repurchase program.

Ivan Seda: No. I think that for the last three 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. As we indicated in our prepared remarks, we will continue that in Q3. That'll be the final quarter, our Q4 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. As Clint indicated, that will be a continuing focus.

Speaker #4: 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.

Speaker #4: That'll be the final quarter, our fourth quarter of the authorization that we announced last year. We're excited to come back with more dialogue on future expectations.

Speaker #4: 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.

Ivan Seda: 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 lock in some of our Tier 2 capital at efficient rates and prices. That's something that we'll be evaluating here as we go into Q3.

Speaker #4: And by that, I mean our tier two sources of capital, which are really, at this point, limited to the ACL as well as some of our legacy trust preferred securities.

Speaker #4: 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.

Speaker #8: Okay, makes sense. Thanks for taking the questions.

Andrew Terrell: Okay. Makes sense. Thanks for taking the questions.

Speaker #6: Great.

Chris Merrywell: Great.

Speaker #1: Thank you. I show no further questions at this time. I'd like to turn it back to Jacquelynne Bohlen for closing remarks.

Operator: Thank you. I show no further questions at this time. I'd like to turn it back to Jacquelynne Bohlen for closing remarks.

Operator: Thank you. I show no further questions at this time. I'd like to turn it back to Jackie Bohlen for closing remarks.

Speaker #2: Thank you. Thank you for joining this afternoon's call. Please contact me with any questions, or if you would like to schedule a follow-up discussion with members of management.

Jacquelynne Bohlen: Thank you. Thank you for joining this afternoon's call. Please contact me with any questions or if you'd like to schedule a follow-up discussion with members of management. Have a good rest of your day.

Jackie Bohlen: Thank you. Thank you for joining this afternoon's call. Please contact me with any questions or if you'd like to schedule a follow-up discussion with members of management. Have a good rest of your day.

Speaker #2: Have a good rest of the day.

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

Q2 2026 Columbia Banking System Inc Earnings Call

Request DemoDemo

Columbia Banking System

Earnings