Columbia Banking System Inc (COLB) 2025 Q4 法說會逐字稿

Hello, and thank you for standing by. Welcome to Columbia Banking Systems fourth quarter 2025 earnings conference call. (Operator Instructions)

At this time, I would like to introduce Jacque Bohlen, Director of Investor Relations, to begin the conference call. You may begin.

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

For a list of factors that may cause actual results to differ materially from expectations, please refer to the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures, and I encourage you to review the non-GAAP reconciliations provided in our earnings materials.

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

Thank you, Jacque. Good afternoon, everyone. The fourth quarter marked a strong end to a tremendous year for Columbia. We continue to advance our strategic priorities while delivering solid operating performance and consistent repeatable financial results. During 2025, we announced and closed our strategic acquisition of Pacific Premier Bank.

As I have stated many times, Pac Premier was a missing puzzle piece to complete our Western footprint. The acquisition bolstered our position as the preeminent regional bank in the Northwest and improved our competitive position in other key western markets, most notably Southern California, where we now hold a top 10 deposit market share position.

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

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

We are already seeing that momentum carry into 2026 with the continued realization of deal-related cost savings and healthy customer pipelines across each of our business units and geographies. Our teams remain focused on the activities that drive business with new and existing customers. Our ongoing balance sheet management strategies are enhancing the quality of our earnings and driving strong internal capital generation.

Our disciplined approach to balance sheet management encompasses our prudent credit underwriting and proactive portfolio monitoring. Our fourth quarter metrics highlight our strong credit profile which remains stable throughout 2025, as we were untouched by external events that negatively impacted some of our peer banks.

Looking forward to 2026 and beyond, we will continue to prioritize profitability over growth just for the sake of growth. Our priorities have not changed. We remain focused on optimizing performance, driving new business growth, supporting the evolving needs of existing customers and consistently delivering superior financial results for our shareholders.

Our bankers have worked tirelessly to generate consistent repeatable earnings for eight consecutive quarters. Consistency has long been a historical trend for Columbia, and we expect that trend to continue as we go forward. I want to thank our associates for another incredible year, your dedication and passion to be the best drive our success, but I couldn't be more excited about the opportunities ahead. Together, we are building a stronger, more dynamic Columbia, one that delivers lasting value for our customers, communities and shareholders.

I'll now turn the call over to Ivan.

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

Focusing on the fourth quarter, we reported EPS $0.72 and operating EPS of $0.82, increases of 6% and 15%, respectively, from the prior year's fourth quarter. Net interest margin expansion and corresponding increase in net interest income was a key driver of earnings performance. Net interest margin was 4.06% for the fourth quarter up from 3.84% for the third quarter and 3.64% for the fourth quarter of 2024.

Slide 19 of our earnings presentation outlines the contributors to the 22 basis points sequential quarter expansion with improved funding performance serving as a primary factor alongside continued earning asset optimization. Having reduced wholesale funding by nearly $2 billion during the third quarter, the fourth quarter results reflect the full benefit of these actions alongside two additional months of operating as a combined company.

Net interest income during the fourth quarter also benefited for $12 million in premium amortization related to acquired time deposits, which we anticipated and highlighted last quarter and $5 million from an accelerated loan repayment, contributing a combined 11 basis points to the margin. The premium on time deposits was fully amortized as of year-end, and it will not repeat in 2026.

Noninterest income was very strong in Q4, with $90 million on a GAAP basis and $88 million on an operating basis as detailed on slide 21. Of the $16 million sequential quarter increase in operating noninterest income, $13 million reflects two additional months of Pac Premier while the remaining $3 million was driven by higher customer fee income, most notably in swap and syndication banking revenue, representing a high watermark for those revenue streams.

Slide 22 outlines noninterest expense, which was $373 million on an operating basis. Of the $66 million sequential quarter increase, $62 million relates to Pac Premier, inclusive of cost savings. As of year-end, we achieved $63 million in annualized deal-related cost savings or approximately 50% of the targeted $127 million, although these savings were not fully run rated for the fourth quarter's result.

Excluding CDI amortization expense of $42 million, operating noninterest expense of $331 million was at the lower end of our $330 million to $340 million range that we signaled in our last call, as certain investments fell back into 2026 from a timing perspective.

Flipping back to slides 16 and 17. Provision expense was $23 million for the fourth quarter, reflecting loan portfolio runoff, credit migration trends and changes in the economic forecast used in our credit models. Our credit metrics remained stable and healthy, and our allowance for credit losses was 1.02% of loans at quarter end and 1.32% of loan balances when the credit discount on acquired loans is factored in. Continuing with the balance sheet, our investment securities portfolio is outlined on slide 11. The portfolio increased by approximately $100 million during the fourth quarter as we purchased $246 million of securities at a weighted average base yield of 4.52%, partially offset by paydowns.

Gross loans and leases were $47.8 billion as of December 31, down from $48.5 billion as of September 30, as we continue to allow below-market rate transactional loan balances to decline alongside declines in our CRE construction and development portfolio. Chris will discuss the loan portfolio trends in greater detail shortly. Total deposits were $54.2 billion as of December 31, compared to $55.8 billion as of September 30.

During the fourth quarter, we intentionally reduced brokered and select public deposits, which collectively declined by over $650 million as alternative funding sources offered more attractive rates. Seasonal customer outflows, which Chris will discuss also contributed to the decline. To supplement funding, term debt increased to $3.2 billion as of December 31.

Slides 20 and 25 review funding flows, our balance sheet sensitivity to interest rate changes and maturity and repricing schedules. Turning to capital. Slide 18 highlights our expanding ratios supported by net capital generation and balance sheet optimization. During the fourth quarter, we increased our common dividend to $0.37 per share from $0.36 per share and repurchased 3.7 million common shares at an average price point of $27.07. Even with the execution of our buyback activity, we saw CET1 and total risk-based capital ratios increased to 11.8% and 13.6%, respectively, as of December 31.

Tangible book value increased to $19.11 as of December 31, up 3% from the prior quarter and 11% from the prior year. Looking forward, we expect net interest margin in the first quarter to land in a range from 3.90% to 3.95%, consistent with what we indicated on our last call. This change reflects the absence of the 11 basis points benefit in the fourth quarter from acquired CD premium amortization and the accelerated loan repayment activity that I discussed earlier as well as higher wholesale balances added to the balance sheet in the latter part of December, resulting from seasonal deposit flows.

After bottoming out in the first quarter, we expect net interest margin to trend higher each quarter throughout 2026 as customer deposit balances rebound and balance sheet optimization actions continue to improve profitability, ultimately surpassing 4% net interest margin in the second or third quarter of the year. As we saw this past quarter, our continued balance sheet optimization activity may lead to modest earning asset contraction during the first quarter. We have maintained a conservative level of excess liquidity following the Pacific Premier acquisition, and we may reduce excess cash to further optimize our funding structure by repaying wholesale sources.

Following these actions, we expect the balance sheet size to remain relatively stable with commercial loan growth offsetting contraction in the transactional portfolio. Excluding CDI amortization, we expect noninterest expense to remain in the $335 million to $345 million range in the first and second quarters before declining modestly in the third quarter as we realize all cost savings related to Pacific Premier by the end of Q2.

CDI amortization will average around $40 million per quarter. We expect to increase share repurchase activity to a range of $150 million to $200 million per quarter in 2026, noting $600 million remains authorized under our current plan. We ended the year with over $600 million in excess capital on our most constrained measure.

Overall, we are very pleased with the financial results for the fourth quarter, driving over 1.4 ROAA and over 17% return on tangible common equity and we feel very well positioned to continue to drive strong profitability as we move into 2026.

I will now hand the call over to Chris.

Thank you, Ivan. Our teams had another strong quarter of business generation. New loan origination volume of $1.4 billion was up 23% from the year ago quarter, while full year 2025 volume was up 22% from the previous 2024. As a result of this activity, Columbia's commercial loan portfolio increased 6% on an annualized basis, although the growth was offset by a decline in transactional loan balances, construction and development loans. We also sold $45 million in acquired loans risk-weighted special mention as we continually prune our loan portfolio.

Slide 24 and our earnings presentation provides additional balance and repricing details related to transactional loans. We continue to expect this portfolio to amortize down until loans reach the repricing date. Limiting our net loan portfolio growth but improving our profitability.

Turning to customer deposits. The strong growth momentum from the third quarter carried into October bolstered by our successful small business and retail deposit campaign, which ran from September through mid-November and added $473 million in low-cost deposits. Inclusive of the two campaigns completed earlier in 2025, Columbia generated $1.3 billion in new customer deposits through three successful campaigns.

Returning to the fourth quarter. Customer deposit balance is contracted due to seasonal decreases in customer accounts, driven by company distributions, tax payments and other typical year-end payouts. We expect modest additional deposit contraction during the first quarter and into April, given anticipated customer tax payments with net growth resuming in the spring as business activity accelerates and seasonal payments end.

As Ivan discussed, customer fee income increased for the fourth quarter. This was driven by the addition of Pac Premier and our continued efforts to expand the contribution of core fee income to total revenue. On an operating basis, noninterest income increased 26% in 2025 over the previous year with exceptional growth in treasury management, international banking, financial services and trust revenue, along with strength across other core fee businesses.

Pac Premier's custodial trust business has been a powerful complement to our existing wealth management platform and we expect continued fee income momentum as we deepen customer relationships with legacy Pac Premier customers. Our loan, deposit and core fee income pipelines are healthy and we remain outwardly focused on generating business in a disciplined manner.

I will now hand the call back to Clint.

Thanks, Chris. The past several years has brought significant change to Colombia. 2023 was a year of widespread integration following the closing of the Umpqua acquisition, which impacted every associate at each legacy organization. We collectively manage through industry liquidity events that occurred in tandem with the deal's elongated closing and our scheduled systems conversion. 2024 was a year of efficiency initiatives.

Our full-scale review resulted in consolidated positions, simplified organizational structures and an improved profitability outlook. In 2025, we added the missing piece to our Western footprint with the Pac Premier acquisition. We continue to invest a portion of 2024s cost savings into de novo locations in targeted markets.

In addition, we added new talent throughout the company, launched new products and implemented new technology all with an eye towards improving operational efficiencies and growing revenue. We also made significant progress optimizing our balance sheet as we increase capital return to our shareholders by repurchasing shares.

As we look to 2026, we have set the stage for an exciting future. We are now positioned to deliver on the full capabilities of our company with the resources, talent and vision to excel in every market we serve in the pursuit of long-term shareholder value creation. We expect to continue to generate meaningful excess capital and fully intend to return that excess to our shareholders. This concludes our prepared comments. Chris, Tore, Ivan and Frank are with me, and we're happy to take your questions.

Towanda, please open the call for Q&A.

(Operator Instructions)

Jon Arfstrom, RBC Capital Markets.

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

Thank you.

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

Yeah, I'll kick it off and then ask Tory and Chris both to offer their insight as well. I've said on previous calls and in various discussions from the very first week that we announced this how this one was different. And how the folks at Pac Premier showed a level of excitement that typically you don't see initially or at least not widespread like what we experienced in the days and weeks following the announcement. And then typically, it's an emotional time for people as change can be hard. And so there can be a little bit of ebb and flow in terms of emotions.

And we've seen none of that, nothing but excitement embracing the ability to do more with their long-standing and very deep customer relationships, excitement of being part of this broader company that has a footprint and reach throughout the Western US. So we work really hard at it. We have some great leaders that joined us from Pac Premier that we're working hard every single day to make sure they're taking care of their people, taking care of their customers and managing through the change. And the last hurdle that we have is the systems integration, and we have a very seasoned team as well as Pac Premier has had a very seasoned team, both Columbia, Pac Premier, I think on a combined basis over the last 15 years have done 20-plus systems conversions and integrations. And so that talent has been hard at work.

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

Great. Thanks, Clint. And Jon, just to give a slightly -- a little bit more color, as Clint said, I mean the enthusiasm and excitement from the Pac-Premier folks has just been amazing. I mean there's it's been centered in kind of three different areas. One is the ability to grow with their existing customer base. So as those customers get bigger, they get to do more stuff with them.

Second would be to call on larger customers, I think, than they historically have in the -- on the commercial side of the house. They're continuing to do what they've always done, but they're kind of slightly going up market, which has been fun for them and great for the bank. And I think the third is just provide more products and services for the customers based on the capabilities that we have as a new company and I'll give you a couple of examples because we look at these often and they're kind of fun to see -- I mean they have a law firm that they brought into the bank that's $22 million in credit and $20 million in deposits.

They brought in an environmental remediation company, about $200 million in revenue, a company much bigger than they would historically call on $10 million credit facility and $10 million in deposits got a surgery center, again, something bigger than they would normally call on $40 million in deposits, $15 million in credit.

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

Jon, this is Chris. I'll add -- well, I'll echo the excitement that has not waned at one bit. The quarter was full of training on our relationship strategy and getting people ready and we've talked previously about the number of referrals that were coming in across all different business lines. Tory gave you some really nice the larger ones there, but it's very granular as well.

And I think another piece is we really started digging in and seeing how the deposit portfolio, which we said was similar to ours how it has really held up and the customers are behaving in that manner. And so that's a real good indication that everything we thought in that space is playing itself out. And I'll close you with the trainings there. We're getting ready to go. And later this quarter, we'll launch another retail campaign, and I can't wait to see the results of that. So it's pretty exciting.

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

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

David Feaster, Raymond James.

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

Thanks, David. Ivan here. I'll start, and then I'll hand over to Tory for maybe more of the color commentary. When you think about that loan decline at $686 million quarter on quarter, I really break it down into two major buckets.

The first is what you referenced earlier, which is that transactional portfolio decline at just under $300 million. And then the second really being very concentrated within the commercial real estate construction and development portfolio, and Tory will speak a little bit more to that aspect of it. Within the transactional book, so far, we're seeing CPRs at kind of 11%, 12%, 13% type level as we've been tracking it over the last quarter. We do believe that will move a bit quarter on quarter depending on kind of what's coming up for repricing. We've got $4 billion of that book that will be maturing or repricing here over the next 24 months.

And as we've talked about in the past, some of that stuff is likely to reprice and stay on our balance sheet. But if it exits that's also an opportunity for us to drive strong accretive value from a revenue growth perspective, whether that's in the form of backfilling with core relationship lending kind of in the 6.5% plus type range is what we're seeing.

So a 200 basis points yield improvement on that or through kind of elevating our paydowns on the wholesale side of the equation. So that's kind of how we're thinking of it at this point, fairly similar to where we were -- so as I look at it quarter on quarter, kind of validation of what we were thinking would likely occur in what we talked about three months ago. I'll hand over to Tory just to kind of give more color commentary as well.

Thanks, Ivan. David, this is Tory. I'd break it down into two different pieces. The first would be the transactional multifamily division lending that we've talked about a lot. And Ivan mentioned that. And I would say this, that roughly 7% or 8% of it today that's coming up from kind of this fixed to floating period is just rolling into the bank at a 6.5% to 7% coupon.

And then the balance of that is exiting the balance sheet and going either being paid off or going someplace else being financed somewhere else. -- but we're retaining right now somewhere between 75% and 80% of it. I don't know if that changes much over the course of this year, but that's kind of what we're seeing today.

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

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

David, you never disappoint you packed a lot into that follow-up question. I'll just start by saying kind of a general guide in terms of the systems component of it is in Ivan's prepared remarks, he noted that we expect to have the full realization of the cost saves in the -- by the end of the second quarter. So that kind of gives you a good sense of the ancillary systems and shutting down surplus servers and getting all of those other things aside from just the core system integrated.

I don't think we will ever be done in terms of when we look at technology implementation and utilization and because it's a moving target. And that's just as an organization. We're always going to be in some form of investing and optimizing the tech stack. In terms of timing of some of the technology that we were excited about from a proprietary standpoint that Pac Premier brought along the first mandate was make sure that the folks in Pac Premier don't lose any of the functionality or the customers lose any of the functionality that they've had for many years.

So we don't want anybody going backwards, and we want to use it as a way to springboard the legacy Columbia customer base and employee base forward. So you had a lot in that question, and so I'm going to step back and let Ivan and Chris and Tory offer their insights.

Go ahead, go ahead.

You mentioned the custodial trust piece of it. I'd tell you, that's an example of where there's a real win from the standpoint of the technology that they use for the core business. is something that we're actually looking to adopt into our fiduciary trust business and bring them even closer in line together. They have a deposit portfolio that will go through the banking conversion, HOA goes to that. The rest of the bank goes through it as well.

As Clint said in his remarks, we're very comfortable with where we're at. That's upcoming. And from there, I think you'll see it's pretty stable, and we'll really look at these opportunities where we're taking of advantage, not just the things that we bring to the table, but the things that Pac Premier brings to the table and that custodial trust one has already paid dividends in winning new business because we have that capability now or the combined capabilities.

I'll just add, David, this is Tory that we're we're full steam ahead and they're doing -- I think they're doing a great job. Chris mentioned earlier in prepared remarks of a origination growth quarter over quarter like a big chunk of that is Pacific Premier. And what excites me about that growth is all the growth from Q3 to Q4 is C&I growth. And they're just -- they're fully locked in on that. Our pipeline for core fee income, TM, commercial card, international banking and merchant is up nicely.

We're about -- roughly $10 million pipeline, which is really strong. A big chunk of that is Pacific Premier. So they're out there providing the products and capabilities that we brought to them, and they're doing a great job executing it.

Yeah, David, and I'll just add like another example of one of the things that we were excited about was Pac Premiers, they called it their API marketplace and that connectivity to customer systems and everything. And we're not super creative as bankers. And so that is now the Columbia Bank API marketplace, and it's been fully implemented and is operational and being utilized across the combined company today as we sit here.

So every component of what we can do, and I'll kind of lean into some of my prepared comments about how do we get more efficient, how do we get better every day as an organization and then what kind of activities can we do or what kind of talent can we bring in to drive additional revenue sources and value for all of our stakeholders. And so -- it's just what I'll call a relentless pursuit of those types of activities.

Jeff Rulis, DA Davidson.

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

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

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

So Jeff, you're taking a queue from David Feaster and packing a lot of threads into that. And so there's parts of it that probably makes sense for Ivan to respond to. And then obviously, I have some thoughts. And so I'll try to hit on -- between Ivan and myself, we'll try to hit on all your points. But if we miss one, just redirect us I still think as a company that we're undervalued.

The lift in our share price has been nice, but it doesn't change our view on reducing the share count and repurchasing stock. I said on the last quarter's call that I believe that the best investment we can make is in our own company. I still firmly believe that.

And so really no interest in M&A with our increase in our share price, still buybacks make sense for us from my point of view. we fully expect at some point, we may get to a position where the market has got us valued appropriately and buybacks may not make sense and special dividends are tools that we've used in the past when we've been in that position and obviously would take a lot of discussion with our Board.

And as we approach that, we would signal that to investors and make sure that folks fully understood why we were making that pivot. There are some things that we can do in terms of cleaning up the capital stack and things of that nature. And that's where I'll step back and ask Ivan to give you his thoughts.

Yeah. No, it's a great question and something we spend a lot of time on. When we talk about capital priorities, really, there's four of them, right, ensuring that we've got the capital necessary to lend to our core clients, right? -- so supporting core loan growth opportunities there. Number two, obviously, the dividend, you saw us take that up 3% quarter on quarter, and we announced that last quarter as well.

Number three, we are making investments in the business. Clint referenced some of them earlier in terms of market expansion opportunities. And we've heard Chris and Tory talk kind of in the past quarter as well about some of the teams that we're building out and bankers that we're adding in certain markets, which is very exciting. And then fourth, to the extent to which we still have excess capital, we will continue to execute our share buyback program. And we do see that as a programmatic approach to it, likely a multiyear approach given the level of excess that we're currently looking at. So that's kind of how we've thought about the capital opportunity there.

Jared Shaw, Barclays.

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

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

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

Correct.

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

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

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

Yeah. And we try to be careful. I'll start and then maybe I'll hand it over to Chris. So quarter over quarter, like you mentioned, we saw interest-bearing deposits flow from about a $2.43 last quarter down to 220 when you exclude the CD premium impact. And as you quoted kind of that 206 in the closing days of the year, with the rate cuts happening throughout the course of the Q4 full effect of that wasn't reflected within the quarter.

We've seen, I think, since Q2, a beta over 50%, we continue to believe that 50% is a good estimate from a through-the-cycle perspective on the interest-bearing deposit beta. And really, that comes down to execution. And I think we talked in prior quarters around the rates down deposit playbook. And we've now done that 3 times in the last several months and it's a great effect. I'll hand over to Chris to give kind of some business commentary as well.

Thanks, Ivan. And Jared, the pricing aspect of it really becomes market-driven. And so we're analyzing that and following our competitors all the time. And when we see opportunities where we can bring it down 5 basis points, we will where we see renewal rates are maybe a little higher than what we typically anticipate.

We might see that there's opportunities to bring down CD rates and things of that nature. And so it's a pretty fluid process throughout the quarter. and looking at those opportunities. And then further, we're really starting to look at because of our footprint now we're really looking at some regional types of pricing, which may give us the opportunities to be able to recognize markets that aren't quite as competitive versus those that are and keep that more in balance in check.

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

Chris McGratty, KBW.

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

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

Okay. So one that's super helpful. The $15 million, is that a fully loaded? Or is that a -- that's a full level number --

Yeah. That includes the CDI accretion impact.

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

This is Tory. I mean just -- I'll just jump in on the investment side quickly. I would tell you that Chris and I are continuously looking for opportunity to bring people into the company. So there's been -- over the past probably 1.5 quarters, we've added our five commercial RMs in Utah, a team in Northern Idaho, a team in Eastern Washington, a franchise finance team, a couple of RMs in Phoenix, three new TM. I mean, we're continuously looking at and finding really good talent that we're investing in bringing in the company.

And we watch very closely the de novo locations that we've created. And every one of them is profitable within 12 months, most of them a lot earlier than that. They're just really good solid bankers coming in bringing customers with them and kind of just off to the races of out of the gate. I think, Chris, I don't know if you any want to add to that, but --

No, I'd just echo it. Same markets, we're finding talent in the health care space. They've hit the ground running extremely quickly. We're finding talent in the wealth space. That typically takes a little longer because of the fee-based type of business that they run. But with the -- we do it a 12-month look back and we're very pleased with the folks we brought in last year, and we're continuing to build out that business as well.

And I think maybe part of your question, Chris, was around the other technology and the things of investing in the bank and that's just always been part of our run rate. I don't know that you see anything different unless we come across something that's going to be a real game changer for us that's really built into a way of life for us. So.

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

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

Matthew Clark, Piper Sandler.

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

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

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

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

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

Yeah.

Anthony Elian, JPMorgan.

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

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

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

Yeah, yeah. It should continue to trend up throughout the course of the year.

(Operator Instructions)

Janet Lee, TD Securities.

If we put together the comments that were provided on earning assets, $60.5 million and $61 million for the first quarter. And then NIM surpassing the 4% mark in either second or third quarter. Is it -- am I fair to describe earning assets staying in that $65 billion to $61 billion were modestly trending down throughout 2026, while NIM stays in that 4% and range in the back half of 2026. Is that a fair way to describe the baseline expectations?

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

Continue going upwards above that 4% each quarter. Got it. And sorry if this was asked already, do we -- did you talk about the fee income growth expectations for 2026? Obviously, fourth quarter was a very solid quarter, it appears. How should we think about the growth in fee income?

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

(Operator Instructions)

Anthony Elian, JPMorgan.

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

The short answer is no. This is something that from a Board perspective, we've anticipated would occur around this time, and we began actively discussing and working towards it from a full board perspective in kind of the back half of 2024. And I'll say that one area that has been a focus of conversation over that time period. and will remain a focus initially for the Board and specifically for me, with the expanded role is to continue to work with Maria and Louis, on what's the right size for our Board, what does refreshment look like?

So I guess the way to sum it up is our roles are changing, but our priorities as a Board or not. And we added three directors from Pac Premier. That was also a component of refreshment as we add 3 directors that rotated out in 2025. And I think we've quickly seen the impact that fresh thinking and new perspective brings. It's been very healthy, a lot of great dialogue with the Board. And so that's just the kind of work that we're going to be focused on in 2026.

Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Jacque Bolan for closing remarks.

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

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