Columbia Banking System Inc (COLB) 2026 Q2 法說會逐字稿

Hello and welcome to Columbia Banking System's second-quarter 2026 earnings conference call.

(Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to turn the conference over to Jacque Bohlen, Investor Relations Director, to begin the call. You may begin.

Thank you (technical difficulty) -- 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.

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. I encourage you to review the non-GAAP reconciliations provided in our earnings material.

I will now hand the call over to Columbia's Chairman, Chief Executive Officer, and President, Clint Stein.

Thank you, Jacque. Good afternoon, everyone.

Our second-quarter results, once again, underscore the same core priorities we have previously outlined: delivering consistent, repeatable results; reshaping the balance sheet to improve long-term profitability; and returning excess capital to shareholders.

Quarter reflects disciplined execution across the company, despite a dynamic operating environment. Our bankers generated solid commercial-loan production and net growth, supported by healthy business activity and the continued addition of experienced talent.

While commercial-loan growth offset intentional run-off in the transactional book, total loans declined during the second quarter due to elevated CRE pay-off activity, driven, in part, by competitive pricing pressure.

I've stated many times that Columbia does not chase growth for the sake of growth. If we are seeing pricing and structures in the market that we believe are irrational, then we will not meet them.

We will compete aggressively for high-quality relationships that meet our return objectives. But we will not destroy shareholder value by sacrificing long-term returns to simply add loan totals.

The same discipline applies to deposits. Our team continues to protect the quality of our industry-leading core deposit franchise by demonstrating the value Columbia brings to customer relationships beyond price.

Our deposit campaigns, which Chris will review in greater detail, 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-savings target we laid out last year, when we announced the Pac Premier acquisition.

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

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

The operating environment is not without its challenges, though. But I'm as optimistic as ever for our future.

We operate with a fortress balance sheet today. It takes discipline. But we believe the repositioning actions we are taking will continue to make our balance sheet structurally stronger; and improve the quality and consistency of our earnings profile, over time.

This long-term improvement is enhanced by our growing stream of quality-fee income. Our balance sheet optimization work also contributes to our capital-return objectives.

Given our current capital position and bullish forward outlook, we returned over $300 million to shareholders during the quarter through our regular dividend and repurchase of our outstanding common shares.

We continue to believe the best investment we can make, at this time, is in the stock of our own company.

I'll now turn the call over to Ivan.

Thank you, Clint. Good afternoon, everyone.

As Clint highlighted, our second-quarter results reflect continued execution of our strategic priorities.

Turning to slide 11, we reported EPS of $0.73 and operating EPS of $0.76 for the second quarter.

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

Turning to slide 12, average earning assets were $60.3 billion during the second quarter, coming in at the midpoint of the range I outlined in April, as continued balance-sheet optimization and elevated CRE pay-offs contributed to modest contraction, relative to the prior quarter.

We continue to actively manage our funding base, reducing overall wholesale funding, inclusive of public wholesale balances, while optimizing the mix towards lower-cost sources.

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

Slide 13 outlines contributors to the sequential-quarter change in net interest margin. Net interest margin was 3.93% for the second quarter. When we adjust for 3 basis points 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 net interest-margin expansion over the past year.

This quarter, however, the yield on investment securities was lower than expected due to the impact of higher interest rates on security portfolio-accounting adjustments.

Despite that headwind, we continue to expect the NIM to move beyond 4% this year, as we have previously articulated.

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

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, above our guided $80 million to $85 million range, even when adjusting for a unique $3 million (inaudible) -- gain.

The teams had an exceptional quarter across businesses. 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.

Excluding intangible amortization of $38 million, the second quarter's $328 million run rate was below our guided range due to the 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 million to $335 million range in the third quarter.

Moving on to slide 17, provision expense was $27 million for the second quarter, reflecting loan portfolio run-off, credit migration trends, and modest changes in the economic forecast used in our credit models. Credit metrics remain stable and healthy.

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

Turning to capital, slide 19 highlights our regulatory capital ratios at quarter end. Our CET1 and total risk-based ratios declined very slightly to 11.6% and 13.4%, respectively, as our regular dividend and robust buyback activity was largely offset by strong capital generation and balance sheet-optimization impacts during the quarter.

During the second quarter, as Clint indicated, we repurchased 6.6 million common shares, returning approximately $200 million to our shareholders through our share-repurchase program.

We continue to have approximately $530 million of excess capital above our long-term target ratios, as of June 30. $200 million remains in our current repurchase-authorization program.

Tangible book value increased 1% during the quarter to $19.22, despite the significant return.

We expect share repurchases to remain in the $150 million to $200 million range for the third quarter and plan to discuss our future repurchase-authorization plans during our next earnings call this fall, as the current program nears its completion.

In addition to our share-repurchase program, we continue to evaluate potential actions we can take to further optimize the entire capital stack.

Overall, we are very pleased with the financial results for the quarter, driving over 1.3% in ROAA and 16% in [ROTC].

As Clint noted, we remain focused on preserving the quality of our earnings, while improving returns, over time.

I will now hand the call over to Chris.

Thank you, Ivan.

Our bankers had another strong quarter of business generation, as new loan origination volume of $1.3 billion was in line with last quarter's strong production.

Looking, specifically, at Colombia'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 pay-offs 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.

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.

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 4 basis points from March 31 to [1.94], as of June 30.

We continue to invest in our franchise during the second quarter, opening our second branch in Colorado and establishing a financial hub in Las Vegas.

We have two more branch openings planned in the coming months. 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 the first quarter -- from the first quarter.

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.

I'll now hand the call back to Clint.

Thanks, Chris.

I want to thank our entire team for their dedication and disciplined execution, which helped deliver our 10th 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. We're happy to take your questions now.

Deedee, please open the call for Q&A.

Thank you. (Operator Instructions)

Jeff Rulis, DA Davidson.

Thanks. Good afternoon. I wanted to -- maybe just trying to unpack the loan. Net loans, down a little over $500 million. Is there a way to talk about the dollar figure of what was intentional, what you grew?

Clint, I think you opened with: Intentional growth was -- exceeded intentional run-off and then, CRE unwanted pay-offs. Do you have the dollar figures of that, roughly, just to see the numbers?

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, really, is into three component parts, as we 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.

We're still continuing to see paydowns out of the transactional portfolio in the high-single-digit to low-double-digit range, month on month.

Really, we were anticipating to see a little bit of a pick-up in the pay-off pace of that portfolio. We did see a little bit. I think, in Q1, that was in the ballpark of $230 million. That's the transactional side of the equation.

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.

And then, 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 pay-offs in the commercial real-estate portfolio. That'd be the third piece of it.

Maybe I'll hand it to Torry to add some color, commentary on the CRE book.

Yeah. Sure. This is Torry.

I'm just -- a little bit on the CRE part of it. These are -- some of the pay-offs have been -- it's getting pretty floppy out there.

I think as Clint said early on, we're not going to change the way we underwrite or take substantial additional risk on the real-estate book. 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, highly competitive. But 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.

I've seen some growth in our real-estate pipeline today; and loan structures that we're used to having and doing at prices that are 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 quarter three. We're working hard to shore it up as best we can.

That's great. Thanks. Maybe just one follow-on, Ivan, to that slide on the next 12 months of intentional, you got $3 billion to go, I suppose, or maturing.

If you could hazard the rest of the second half of '26, could we just assume maybe half of that, $1.5 billion, is what you'd target for what would be coming off out of the transactional book? Is that fair?

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 so roughly $750 million over three quarters. That's 9%. It's that 12%, 13% run rate.

Our presumption is that we'll be in that similar range for the next few quarters, call it, $250 million or slightly higher than that in terms of the reductions out of that portfolio.

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

The other thing that we pointed out in the past is, we've got about $3 billion of this that will reprice and/or mature over the next 12 months. And then, the pace of that begins to slow down.

When you get out to, call it, summer of 2027, that level of repricing -- and from-a-growth-perspective headwind -- begins to diminish modestly in summer of next year.

Yeah. Okay. Thanks for the detail. I'll step back.

Thank you.

David Chiaverini, Jefferies.

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. Can you talk through how we should think about 3Q and 4Q around that 4%?

Yes. Happy to provide a little bit of extra color, commentary on that.

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 points headwind associated with one-time credit-related interest income reversals. 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.

That's really a function of higher macro-interest rates, resulting in slower anticipated pre-payment speeds on our mortgage-backed and [CMO] securities portfolios.

Because we have those at significant discounts to par, we were accreting slightly less discount into the in-quarter results. You can see in the walk there that that's basically a 4 basis points 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. The coupon in that book, what we're purchasing from a front-book basis, is about 75 basis points or 80 basis points higher than the back book.

And so, while we will always be subject to some of the implicit volatility in the accounting recognition there, we're, overall, pretty satisfied with where that's going over the course of several quarters.

As we turn the page towards Q3, we do expect that we're going to be getting up to and beyond that 4% net interest margin so that's a pretty good barometer for Q3.

The factors that we're looking for are the same factors that we've been talking about before: the continued remix of our loan portfolio, overall; the repricing opportunity that we do have.

As you heard from us earlier, it's a slightly smaller balance sheet. But we think that, over time, that does unlock opportunities. We will continue to see optimization occur there.

Those would be my comments regarding how we're thinking about the margin, going forward.

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

This is Ivan, again. I'll get my perspective. And then, I'll let Chris weigh in.

And so you're right. I was very pleased with where we landed, quarter on quarter. We saw another 8 basis points 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.

And so 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. But 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 more color, commentary.

Thanks, Ivan. Yeah. I just added to 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. 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. 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. You'll see there's probably some upward pressure on the overall rate on those. Money markets are the same. But, again, we're competing where we can. We're looking at relationships and trying to hold the line steady.

I'd agree with Ivan that we could be in a trough, right now, until the market, itself, retreats back. If it doesn't, then you could potentially start seeing some deposit costs that could start to trickle up a little bit.

Very helpful. Thank you.

Thank you.

David Feaster, Raymond James.

Hey. Good afternoon, everybody.

Hey, David.

You guys -- we've talked a lot about intensifying competition. Especially, you talked about pricing on CRE loans.

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? Or are there any other balance-sheet optimization strategies that you would consider today?

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.

I know you're likely seeing that in other pure-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 owner-occupied and so we continue to see that trickled through there.

But, in terms of selling any of this portfolio, we're going to continue to hold off on that, at this point, because it just doesn't make economic sense and wouldn't be accretive, from a shareholder perspective.

Okay. That makes sense. And then, maybe touching quickly on the hiring side, obviously, there's been a decent amount of disruption across your footprint over the past couple months.

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

Hey, David. This is Toryy. I'll start. And then, I'm sure Chris can jump in.

I think I'd answer the last part of that question -- is we are always looking for really good talent that is accretive to the company in each and every market.

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 of additional really good bankers in the Pacific Northwest, in the Seattle area, in Portland. We've hired some good bankers in Utah.

We started a food franchise business that hired a couple of leaders. They've had some infill, with a couple of outstanding bankers there.

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. They're bringing business in, right away.

It's been great to see. We'll continue to look for them.

Yeah. 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.

(inaudible) -- it's not just on the customer-facing side, where we're adding talent. We had the opportunity to bring in a senior regional -- western -- he oversaw most of the western US (inaudible) -- 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 remove friction for our bankers; remove friction for our customers.

It's throughout the entire organization that we're adding that talent.

That's great. If I could squeeze one quick -- one more in, maybe for you, Clint? It's interesting. I talked 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 and what's your appetite for another deal, at this point, with that deal done?

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

(inaudible) -- zero interest in the whole bank in it. As I've said, for the past five 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, our [de novo] markets are de novo because there's really no way -- the West has been pretty much consolidated, I'd say, with the exception of Washington and California.

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. As we see, they hit their full stride and the momentum that they have.

Last week, we held a grand opening for our Colorado Springs branch that just opened a few weeks ago -- [$30 million] and [$80 million] in deposits.

Our investments in Utah continue to generate meaningful new customers.

The three 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 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.

I haven't talked about our current capital levels. You, all, have projected what our profitability is going to be. And so, you can see that, barring some major reset in the macro environment that we can't control, 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. It remains -- and some of the irrationality that we're seeing in the pricing there.

If I have to give you something, I'd say, it's possible that, at some point we might invest in a small bolt-on business, if it helped us with our fee-income or deposit-generation capabilities but, certainly, not interested in full 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.

Now, we're having fun, again. Our people are having fun. We see the momentum that's out there. We don't want to disrupt that.

That's great. Thanks, everybody.

Thanks, David.

Thank you.

Matthew Clark, Piper Sandler.

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.

Yeah. 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 more wholesale public channel

And so we've continued to optimize that. 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. But we keep, in particular, the FHLB advances very short duration.

And so we've got, I think, $1.7 billion-plus of that advances mature, any given month. The answer is yes. We'll continue to optimize that, as the core deposit business builds back up.

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

It's a great question. I would say, I would guide you to flat to down, from where we're at, on an ending basis. We talked earlier about the commercial real-estate portfolio. I think we've got a lot of focus on the continued growth in C&I and owner-occupied commercial real estate.

We are very active in terms of, in that commercial real-estate market, building pipeline and lending. But there has been an increase in terms of the pre-payment volumes that we're seeing in that space.

I would signal you flat to down, from an overall earning-asset perspective, as we look out to Q3.

Okay. Great. Thank you.

Thank you.

Chris McGratty, KBW.

Greta. Thanks. I don't think we touched on credit but I feel like I have to ask a credit question. Feels pretty good.

Anything incremental that you're watching in the book? I know MDFI got a lot of attention for the industry a couple of quarters back but just anything that you're re-underwriting, given higher rates. Thanks.

Chris, really, the only thing that really continues for us -- and here over the past couple of quarters -- it's like Groundhog's Day, right?

It's ag. But we are seeing some improvement, actually, in ag from a -- if 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've seen 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. But those are still holding in pretty nicely. I feel really good about the portfolio, right now.

Okay.

Sleeping pretty well.

All right. I think the rest of my questions were asked. Thank you.

Thank you.

Jared Shaw, Barclays.

Hey, everybody. Thanks. Yes. First, thanks for the [PAA] update from the security side on slide 13. But was there any impact to margin from accelerated pay-offs that we should consider, as well, on the loan side?

Yeah. 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.

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.

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 who's nuanced there but couldn't help myself. And so, 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. The last time we called one out would have been Q4, where we had an outsized pay-off of a marked loan.

But, really, it's been like clockwork since then. There really hasn't been a whole lot of volatility, in regard to that.

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

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

You probably would not see it, as it blends in. It barely moves the needle in terms of the overall securities portfolio, overall. But we did shorten the duration in terms of the purchases that we did during Q2.

That was, I think, purchased at a 2.6-year duration, which is obviously south of the back book, in regard to that.

And so, on an amortized cost basis, the portfolio grew a little bit, quarter on- quarter. That, really, was just refilling the bucket. We'd seen it just move down a little bit in Q4 and Q1 so not really any big intentional strategic shift or reallocation of capital into the securities book or anything like that, more just refilling the bucket and doing so at rates that we were really pleased about, from a securities-portfolio purchase perspective.

Okay. All right, thanks. And then, just on the CRE side, just trying to reconcile the answers to Jeff and Matt's questions and then, your discussion around the 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? That you're willing to take that lower pricing on that? Or how should we think about the property market; your lack of interest in those pricings; but, also, the loans that are coming due?

Yeah. This is Torry. A couple of things to that:

I think, first of all, the transactional multi-family business or the transactional loans that are coming due, they'll either reprice with us at the rate that's contractual or they would not 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, if it -- we would not jeopardize credit quality and we would not chase price to the floor. But that doesn't mean that we can't be competitive and that we can't keep some of the business -- or bring some additional business in the door, which we are today.

And so it's a little bit of blocking and tackling of, just, maintaining credit culture; and negotiating wisely; and getting us the highest rate that we can that makes sense for our customers and for the bank.

As I said, we've got some growth in the CRE pipeline, already. But I would want to jump in here and add that, in the pipeline -- the loan pipeline, itself, for the bank is pretty phenomenal.

I think our total pipeline today is about just under $4 billion. 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 this tremendous emphasis for us.

Of the $4 billion, about $2.6 billion of it comes out of the Commercial Banking business. That compares to $1.2 billion a year ago so some really nice pipeline growth, mostly on the C&I side, which is what we're trying to do; and then, as of late, a little bit on the real-estate side..

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 multi-family 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. We continue to feel that, in terms of driving value to shareholders, that's not the way to do it; that I think that you would diminish tangible book value in executing that trade and that the better plan is to let that either mature or reprice back to levels that are no longer a net interest-margin headwind.

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.

Great. Thanks a lot.

Thank you.

Janet Lee, TD Cowen.

Good afternoon. On fees, you screen as -- in terms of the revenue composition, you drive more of your revenue from [NII] and less so from fee come versus peers.

Now that the PPBI integration is behind you and, to Clint's point earlier, you're having fun again, how should we think about the upside to your fee income from current level?

I appreciate the mid-[$80 million] near-term guide. But how should we think about the growth trajectory there beyond the third quarter?

Jan, this is Torry. I'll give you some of the details. I'll let Ivan, if he wants, to add in, on top of that.

You're 100% right. There's a lot of fun in this business. We're actually seeing it again, which is great. There's been a tremendous growth trajectory on the fee income side of the house for the bank. It's coming from all parts of the company.

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's a tremendous growth trajectory. For the first time ever, our commercial-card spend for our customers was over $100 million in June. That's up 14%, year over year.

Our Wealth business -- our combined wealth Business -- had a record-setting quarter in Q2. Their momentum has carried forward into July. We think that they'll just 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.

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

That's probably right. I think, if you were to look back the last handful of quarters -- this is Ivan -- we've probably been outperforming that a little bit.

One of my favorite way to look at it -- and I think everyone's got their preferred analytical lens -- is looking at the non-interest revenue as a function of the size of the bank, right, so on an average assets basis.

And so, as I look back to a year ago -- prior to PPBI, prior to some of the optimization -- and then, just the core growth and relationships, we were somewhere in the high 40 basis points-type range.

This quarter, we reached 55 basis points. And so it's incremental. It takes brick by brick. But it continues to translate into a higher percentage of our revenue base in the form of fee income.

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.

Got it. If I can just squeeze in one more on expenses, the $330 million to $335 million range in the third quarter, is that the ballpark range that we should be expecting for the fourth quarter?

And then, how should we think about the normalized expense growth run rate, now that, again, the PPBI is behind you and, maybe, things are going back up, again?

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], [Tom], the [PMO], and our tech teams for just an incredible job with the technical integration during the first quarter 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.

Honestly, that's what you're seeing in the first half of this year, as we've performed very well, from my perspective, on that front. We do expect that Q4 will be in the same range as Q3.

I would ballpark 2% as 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, 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.

Thank you.

Thank you.

Timur Braziler, UBS.

Hi. Good afternoon. Do you need to see pay-off 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? Is that what's ultimately needed to restart the NII growth engine?

It's a great question. I think there's more to it than just whether or not we continue to see elevated levels of pre-payment volumes in commercial real-estate assets.

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. That's a factor in terms of the growth or lack thereof.

But, obviously, we're very focused on optimizing our loan portfolio. We do believe that that will drive a more efficient -- both -- balance sheet and bank, once we get through the end of that.

We've got $3 billion more that's maturing over the next 12 months. 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 where we want it to be.

And then, just on the deposit side, we still have opportunity to continue to optimize our funding stack. I think we were talking, earlier, about -- from Matthew's question around the level of borrowings that we have.

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.

Yeah. Thanks, Ivan. Yeah. We don't look at it as growing deposits to all these, just, fund loans. A deposit-only customer is really valuable to the bank. 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.

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

Thanks for that. And then, Clint, maybe one for you: You had called out on 19.5% illustrative ROTC for '26, when you announced the PPBI deal.

Been doing a post-mortem 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.

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. I think you see an increase this quarter, relative to last quarter, of roughly 1%, right -- 16% ROTC.

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.

That's prior to some of the [NPRs] that are out there that, as we've talked about earlier, provide some very interesting optionality to think about continued optimization of our capital stack.

We're working through that process in terms of that excess capital and I think have been very active in terms of the redeployment of that capital back into our share-repurchase program and dividends, which, in aggregate, is going to return over $1 billion, one, 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 to 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.

The one thing that I'll add, specific to the 19% ROTC target -- Ivan mentioned 16% here in the second quarter, just, what, a little over three quarters in three full quarters into the close of the acquisition.

But you also have to remember back or think back to our starting capital that we closed -- the Pac Premier deal was higher -- the amount of capital that they brought in and the marks.

We started with more capital than what we had in the model, when we put that 19% ROTC 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.

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.

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 returns for you.

We said that five years ago with the Umpqua deal. We said that Pac Premier would enhance that. 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 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.

Great. Thanks for that, Colin.

Thank you.

Anthony Elian, JP Morgan.

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

I'd say, we're, on a full-year basis, still targeting that low- to single-digit total core deposit growth that we've talked about. I think Chris unpacked it earlier in his comments.

The vast majority of the movement we've had in the deposit base, broadly, was in the form of brokered CDs and higher-cost wholesale sources.

When we think about the reduction that we saw in Q2 out of our core deposit portfolio, we saw reductions in some of the legacy Pac Premier accounts, specifically in higher-cost CD portfolios, alongside the normal seasonal flows that we get every April.

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

Yeah. Anthony, this is Chris. I'll 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.

And so I think what Ivan stated in that low-single digits is the right place to think about it.

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

Thank you.

The former.

Clear. Thank you.

Thank you.

Andrew Terrell, Stephens.

Hey. Good afternoon. (multiple speakers) -- I just want to follow-up on the security field. Can you help us understand? I know the pre-pay assumption can move us around a bit, quarter to quarter.

But if we just assume rates are flat throughout the third quarter, does a security yield rebound to that [420]-ish-type level or do you need to see the rates to go back down to get security yields back up?

No. It would -- obviously, there's a lot that goes -- a lot of technical, CPR analytics and pre-payment expectations that go into it.

The duration portfolio of our MBS, CMOs, and [CMBSs] are all slightly different. It depends on how the curve shifts over the course of the quarter; at what pace; and at what tenors.

But, generally, like, the simplified version of that would be: assuming it stays steady over the course of the quarter, we should not see that as a continued headwind. It really was a function of, the -- whatever it was -- 40 basis points 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.

Okay. Great. No. That's helpful. I appreciate it.

And then, actually, this 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 mixed change on loan growth expected? Or could you maybe unpack that a little bit more?

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. 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 will be the final quarter or fourth quarter 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.

In addition to that, we are looking at our full capital stack; 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.

Okay. Makes sense. Thanks for taking the questions.

Great.

Thank you. I show no further questions at this time.

I'd like to turn it back to Jacque Bohlen for closing remarks.

Thank you. 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 your day.

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