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Edited Transcript of COLB earnings conference call or presentation 26-Jul-18 8:00pm GMT

Q2 2018 Columbia Banking System Inc Earnings Call

Tacoma Aug 21, 2018 (Thomson StreetEvents) -- Edited Transcript of Columbia Banking System Inc earnings conference call or presentation Thursday, July 26, 2018 at 8:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew L. McDonald

Columbia Banking System, Inc. - Executive VP & Chief Credit Officer

* Clint E. Stein

Columbia Banking System, Inc. - Executive & COO

* Gregory A. Sigrist

Columbia Banking System, Inc. - Executive VP & CFO

* Hadley S. Robbins

Columbia Banking System, Inc. - President, CEO & Director

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Conference Call Participants

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* Aaron James Deer

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst

* Jacquelynne Chimera Bohlen

Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research

* Jeffrey Allen Rulis

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Jon Glenn Arfstrom

RBC Capital Markets, LLC, Research Division - Analyst

* Matthew Timothy Clark

Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the quarterly manager's meeting. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the call over to Hadley Robbins.

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Hadley S. Robbins, Columbia Banking System, Inc. - President, CEO & Director [2]

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Thank you, Will. Good afternoon, everyone, and thank you for joining us on today's call as we review our second quarter 2018 results.

The earnings release and a supplemental slide presentation are available on our website at columbiabank.com.

Earlier today, we reported record quarterly net income of $41.7 million for the second quarter and earnings per share of $0.57.

Excluding merger and related costs, we achieved $0.60 per share. This is an increase of $1.8 million or 4% over the prior quarter and an increase of $14.6 million or 54% over the second quarter of 2017.

The second quarter results reflect steady progress. Loan production was a second quarter record of $373 million. NIM increased to 4.29%, up 7 basis points, in part due to stable average deposit costs which remained unchanged at 10 basis points. We also saw nonperforming assets trend down to 61 basis points to period end assets, a quarterly decline of about 11 basis points. I attribute our progress to the dedication of our employees who made Columbia such a special place to work.

During the second quarter we were delighted to learn that Columbia Bank was named one of Washington's Best Workplaces by Puget Sound Business Journal for the 12th year in a row.

On the call with me today are Greg Sigrist, our new Chief Financial Officer, who will provide details about our earnings performance; Clint Stein, our Chief Operating Officer, who will review our production activity; and Andy McDonald, our Chief Credit Officer, who will review our credit quality information. I will conclude by providing an update on our business conditions. Following our prepared comments, we'll be happy to answer your questions.

It's important that I remind you that we'll be making forward-looking statements today, which are subject to economic and other factors. For a full discussion of risks and uncertainties associated with the forward-looking statements, please refer to our securities filings and, in particular, our 2017 SEC Form 10-K.

We're pleased that Greg joined our executive team this quarter and we'll put him right to work. At this point, I'd like to turn the call over to Greg to talk about our financial performance.

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Gregory A. Sigrist, Columbia Banking System, Inc. - Executive VP & CFO [3]

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Thank you, Hadley, and good afternoon, everyone. It's my pleasure to join the Columbia Bank management team and to have the privilege of sharing our second quarter results with you today.

As Hadley mentioned, we reported second quarter earnings of $41.7 million which is $0.57 per diluted common share. EPS did show growth in the prior quarter and is 21% ahead of the same quarter last year.

There are a number of key drivers that will help explain our reported earnings for the second quarter and give some context as we look ahead.

Net interest income increased by $1.2 million from the prior quarter due primarily to higher loan yields. And I will discuss our NIM expansion in more detail in a minute. We also had a lower credit provision, which Andy will take you through.

We saw modest growth in noninterest income in the quarter, largely in [product] revenues as well as our financial services and trust businesses.

Growth in these business lines enable us to provide our clients with a full menu of products and services and, at the same time, strengthen the bank with diversified revenue streams.

This growth is also encouraging as it will help to offset the reduced interchange income as a result of the Durbin amendment and the lower interchange rates that became effective for us on July 1. As a reminder, we estimate the pretax impact to be roughly $2.5 million for the quarter.

There are obviously a lot of moving parts with the noninterest expense. Let me highlight a few items to put the quarter and outlook into perspective.

As we mentioned earlier, acquisition costs in the quarter were $2.8 million, which compares to $4.3 million in the prior quarter. The details of those expenses by line item are in the second quarter earnings deck, which has been posted to our Investor Relations website.

Looking ahead, we do expect another $1.5 million in acquisition cost largely in the third quarter. When you back out these acquisition expenses as well as OREO-related costs, we were right on the run rate target of below 80 that Clint had said in the prior quarter.

We've achieved the expected cost savings of the Pacific Continental acquisition, which were $19 million. We consolidated 7 branches during the first half of 2018, given their close proximity. There were 6 branches closed in the first quarter and 1 branch closed in the second quarter. So we are starting to see the benefits of that consolidation come to our expense run rate.

Our core noninterest expense was in line with the prior quarter, with an increase in legal and professional fees, partially offset by a decrease in compensation and employee benefits. There were a number of items contributing to the increase in legal and professional fees, but the second quarter expense is a good proxy for our run rate on that line in the near term.

The decrease in compensation and employee benefits is mainly due to a decrease of $965,000 in 401(k) expense related to annual bonus payouts in the first quarter of 2018.

We will continue to focus on expense efficiencies across our footprint. And to reiterate what Clint has expressed in the past, an expense run rate in the low 80s is a reasonable short-term estimate.

These expenses include some of the project costs to improve our clients' banking experience. However, additional investments are necessary to maintain and grow our long-term franchise value.

Our effective tax rate started to normalize during the second quarter. At 19.3% for the quarter, our effective tax rate is in the range we would expect for the full year, which is 19% to 20%.

Before I hand things over to Clint, let me spend a moment on our operating net interest margin, which was 4.27% for the second quarter. This was an increase of 9 basis points from the prior quarter, driven by higher earning asset yields especially on the lending side. Our net interest margin has seen little impact from deposits in the quarter.

Deposit costs are holding steady, though we have responded to rising rates with some modest increases in our money market deposit rates.

Given the mix of floating and variable rate loans in our portfolio and the strength of our deposit base, we continue to feel the NIM will hold up well in the coming year.

At this point, I would like to turn the call over to Clint to talk about the production activity.

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [4]

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Good afternoon, everyone. I assure you no one is happier than I am to have Greg join our team. As Greg mentioned, we continue to make the investments we feel are prudent to grow our franchise and deliver superior long-term shareholder value.

Some of the infrastructure we have already put in place includes a platform for relationship management, a new mobile and consumer online banking system and a marketing automation platform. These initiatives are examples of our commitment to exploring and implementing technology that removes complexity and makes life easier for our clients and our people.

In the coming year, we will launch projects to improve our digital banking products to businesses, broaden our P2P payment capabilities, improve our clients' onboarding experience and expand our training and career development programs.

Total deposits at June 30 of $10.4 billion were essentially unchanged from the prior quarter, while our costs of deposits of 10 basis points remain unchanged from the prior quarter.

We are closely monitoring market rates along with client sensitivity and have made some client -- some relationship-based concessions as a result.

Total loans at June 30 of $8.5 billion was an increase of $115 million or 1.4% from the prior quarter. Our commercial business loans grew the fastest in the second quarter at 4%.

The quarterly average tax adjusted coupon rate for new loan production was 4.94%, and it compares to a portfolio rate of 4.83%. The production mix was 44% fixed, 48% floating and 6% variable.

Loan production in the second quarter was $373 million, which is an 18% increase from the prior year quarter and, as Hadley mentioned, a record for second quarter production.

As expected, our seasonal line utilization has kicked in and provided a nice tailwind for the quarter. And with the systems conversion in our rearview mirror, we are also beginning to enjoy the benefit of production from our new team members who joined us from Pacific Continental.

In terms of geography, 50% of the new production was generated in Washington, 30% in Oregon, 4% in Idaho and 16% in other states. Our production in other states is growing as a result of our national health care practice that was part of the Pacific Continental acquisition.

C&I loans ended the quarter at $3.5 billion; that's up about $136 million or 4% from the previous quarter. New production of $216 million was up 67% over the first quarter.

Commercial real estate loans ended the quarter relatively unchanged at $3.9 billion. Commercial and multifamily construction loans ended the quarter at $388 million; that's up less than 1% from the prior quarter.

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

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Andrew L. McDonald, Columbia Banking System, Inc. - Executive VP & Chief Credit Officer [5]

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Thanks, Clint. Greg, it's great to have you on board.

Okay. On the credit side, the company had an aggregate provision for allowance for loan and lease losses of $4 million as compared to $5.9 million in prior quarters. This included a provision of $5.25 million for the originated portfolio and $50,000 for the Pacific Continental portfolio.

Offsetting these provisions were releases from the West Coast and Intermountain portfolios which, combined, were $750,000. And the release of $575,000 from the purchased credit impaired portfolios.

Charge-offs was a primary driver for the provision this quarter. Most of the net charge-offs occurred in the originated portfolio, which has $3 million in net charge-offs. And the Pacific Continental portfolio had around $560,000 in net charge-offs. In total, we had $3.7 million in net charge-offs, which almost equates to the amount we provisioned for during the quarter.

As of June 30, 2018, our allowances to total loans was 0.95% as compared to 0.96% last quarter. And it was 1.14% as of June 30, 2017.

This ratio is impacted by our acquisitions of West Coast, Intermountain and Pacific Continental as those loans were acquired at fair value. Embedded in those valuations is approximately $30 million of discount, and there is approximately $21 million associated with the Pacific Continental portfolio.

For the quarter, nonperforming assets decreased $21.8 million and were partly offset by an additional $8.4 million in new nonaccrual loans. As a result, for the quarter, we enjoyed a net reduction in NPAs of $13.4 million.

The decreases were largely related to paydowns and payoffs along with OREO sales, which accounted for 54% and 20% of the decrease in NPAs.

Also contributing was a rather large charge-down from our agricultural portfolio of approximately $4 million, which was associated with the cattle industry. In aggregate, charge-offs accounted for about 20% of the reduction in NPA.

New additions for the quarter were primarily in the business commercial pool, with no one industry accounting for a significant portion.

The average loan size which moved to nonaccrual during the quarter, was approximately 302,000, so it's pretty granular stuff this quarter.

All in, the nonperforming assets to total asset ratio decreased to 61 basis points, down from 72 basis points last quarter.

In summary, it was a good quarter credit-wise. Past dues were 41 basis points, NPAs were down as discussed and our impaired asset to capital ratio decreased to 16% from 21%.

Hadley?

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Hadley S. Robbins, Columbia Banking System, Inc. - President, CEO & Director [6]

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Thanks, Andy.

The strength of the national and global economy has been a catalyst for economic growth rates experienced in the Northwest. The region has grown faster than the national economy, but growth rates have leveled off, largely due to the availability of workers.

Population growth is strong, however, not strong enough in the right places to provide all the workers the businesses would like to hire. As a result, most businesses are having challenges recruiting employees to fill open positions. In a number of industry segments we serve, the shortage of workers is starting to put upward pressure on wage rates.

Overall, the near-term outlook for the Northwest remains favorable. That said, we have concerns about recent tariffs introduced by the United States that have led to retaliatory tariffs imposed by Canada, European Union, Mexico, and especially China, who buys 28% of all exports from the Northwest.

Our regional economy is very trade-dependent. If a trade war were to intensify around the world, it would have serious economic implications for the Northwest. At this point, broad-based negative economic impacts associated with tariffs are not evident. However, business owners are concerned. They'll be watching trade-related developments closely in the coming months. Most recent discussions between the U.S. and the European Union is certainly a positive step in the right direction.

Our second quarter dividend of $0.26 per common share is an 18% increase over the same quarter of the prior year. This quarterly dividend will be paid on August 22, 2018, to shareholders of record as of the close of business on August 8. This dividend constitutes a payout ratio of 46% for the quarter, a dividend yield of 2.50%, based on the closing price of our stock on July 25, 2018.

This concludes our prepared comments this afternoon. As a reminder, Greg, Clint and Andy are with me to answer your questions.

And now, Will, we'll open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Jeff Rulis.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [2]

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I guess on the expense line, appreciate the commentary. Just to kind of finish that up. I guess, though, the $1.5 million of merger cost, that would effectively end, what you think and the merger cost and then if you could just -- are we at the end of cost savings from the deal, given the low 80 sort of run rate on expenses?

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [3]

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I'll jump in on that one, Jeff. This is Clint. Yes. We hit those cost saves pretty early in the quarter. And we came in, I think, about $85,000 actually higher than what we had originally anticipated. So we're pretty much in line with the model. I think anything else that we would see from here on out, would just be normal course of business type of stuff, so from my perspective. Greg, when he's got another quarter behind him, may have a different perspective. But I'm going to give him a little air cover right now and say I think that we've executed on the anticipated cost saves.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [4]

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Got you. And then maybe, Hadley, a broader question on M&A appetite as things settle in here and discussions, and then maybe that could even dovetail on the kind of capital management. Noted the dividend increase, but kind of plans going forward?

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Hadley S. Robbins, Columbia Banking System, Inc. - President, CEO & Director [5]

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Well, we remain very much interested in strategic M&A. It's part of our overall strategy. And we continue to look for partners that fit our culture, our business model and create meaningful accretion for our shareholders. We're focused, first and foremost, on our existing footprint in the Northwest, but we have given some consideration to looking south, Northern California.

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Jeffrey Allen Rulis, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [6]

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And on the capital management front, any change?

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Hadley S. Robbins, Columbia Banking System, Inc. - President, CEO & Director [7]

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Capital management front, we are continuing to evaluate our options as we look at our expansion plans relative to CapEx and some of the plans that we have for our branches. We're in the middle right now of piloting a new concept for our branches. We're evaluating new technologies and using that as an opportunity to assess the long-term direction of our branch channel strategy. Concurrently with that, we're also looking at how we best can efficiently use the capital that we have. We'll be considering the dividend next quarter and potentially look at starting a special dividend in the third quarter.

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Operator [8]

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The next question comes from the line of Matthew Clark.

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Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [9]

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I wanted to talk a little bit about the loan growth in the quarter. Can you update us on what the line utilization was here in the second quarter? And whether or not we should see further seasonal increase in the third?

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [10]

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Yes. Typically, the seasonality for us does carry us through most of the third quarter. Some of the lines we could see -- start to see paydowns late in the quarter, but definitely, we'll expect some benefit as we go through July and August. In terms of where we're at, the utilization rate was up about 2 percentage points. So from 50.5 to 52.5. That also includes a little bit of noise because we originate new commitments during the quarter as well. And I don't have that number right here in front of me. But in terms of just overall utilization, we did get the uptick that we were expecting. And it will create a little bit of a tailwind this quarter -- in the third quarter. And, but then it'll turn and we'll start seeing that utilization come down in the fourth quarter and expect that it would trough in the first quarter of next year.

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Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [11]

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Okay. And then can you speak to kind of a non-C&I in the quarter, kind of flattish CRE? I guess, were payoffs an issue? And if so, what were overall payoffs in the second quarter versus the first?

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [12]

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Yes. Payoffs were pretty strong, and I think we put a thing out in our slide deck that showed that. We had, between payoffs and prepayment activity, of $304 million in the quarter. That's nearly double what we had in the same period last year. And it's quite a bit stronger than what we had in the first quarter of the year as well. So that was a headwind for us. There were some payoffs that we were expecting, some larger ones that came in. So we think that, looking forward, we're probably going to drift back towards the level that we've had historically. But they definitely did impact our bottom line growth number for the current quarter. Did that answer your question, Matt?

(technical difficulty)

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Operator [13]

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The next question comes from the line of Aaron Deer.

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Aaron James Deer, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst [14]

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I guess I'll throw this out to Greg and Clint. I'd be curious about -- kind of given your outlook for and the trends that you've been seeing in loans and deposits, what are your thoughts on what you'd do with the securities book? I guess where I'm kind of going with that is do you anticipate another decline in the average earning assets here in the third quarter? Or might we see that resume its trend moving higher?

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Gregory A. Sigrist, Columbia Banking System, Inc. - Executive VP & CFO [15]

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I'll take the first stab at it, and then Clint can correct me as he sees fit. I mean we obviously have elasticity on both sides of the balance sheet. And I think part of the answer is dependent upon what we decide to do on the funding side as well. As I kind of look in the third quarter, I'm not really anticipating any material or really many changes on the earning assets side of the equation at all. I think we're as focused on the deposit side just with the strength of the franchise value that's driven on the deposit side, that we keep pace on that side of the equation as well.

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Aaron James Deer, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst [16]

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Okay. And then, I guess with respect to the deposit side. It seems like you guys are paying pretty close attention to what you're seeing out in the market and that you might have given an uptick on your offered money market rates. But I'm just curious, because you guys are pretty materially below where a lot of other kind of call it the traditional community commercial banks are on those rates, is there at all any concern about having to play catch up at some point where suddenly you find that you're way too far behind where folks are and you needed to respond with pretty material increases in your pricing?

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [17]

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I think that's always a risk, but we've had strategies in place to try and insulate ourselves against that risk. And I think just the structure of our deposit base, in general, where it's 58% business accounts and 42% consumer, and nearly half of them are noninterest-bearing, gives us a lot of latitude in terms of maintaining that low cost structure. And the activity that we've seen in the market is it's really -- folks are concentrating on the higher tiers. That's where we're seeing some market activity, making pricing concessions where it's meaningful and making sure that they don't lose relationships. And that's the same thing that we're doing. And so I don't see us being an outlier in terms of our lag and what a potential catch-up might look like. I think if that happens, it's -- the whole market shifts. And then you're going to see potentially all of our competitors in the Northwest experiencing the same thing.

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Aaron James Deer, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst [18]

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Sure. That's good color. And just one last one for you, Clint. In years past, maybe not in 2017, but before that, I think you guys typically had a big media buy in the third quarter of the year. Is that something that's still on -- going on that we might see again this year, or is that -- is it more of just regular run rate through the year now?

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [19]

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Greg and I were just actually talking about that before the call. And I don't have that number in front of me or what that plan is. It's something that Greg and his team are working with the marketing group to get that forecasted for the balance of the year.

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Gregory A. Sigrist, Columbia Banking System, Inc. - Executive VP & CFO [20]

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And we don't have incrementally, [we clearly were implied], but you can assume if we did it last year, probably good assumption we'll do it this year. So between now and the time I have a better answer for you, that's what I would say.

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Operator [21]

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And our next question comes from the line of Jackie Bohlen.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [22]

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Hadley, in terms of your comments on the special dividend that you might reinstate in the third quarter, would you look to do a similar policy from what you had in the past where it's continuous and variable based on earnings?

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Hadley S. Robbins, Columbia Banking System, Inc. - President, CEO & Director [23]

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Right, and our acquisition strategies. And naturally it's going to be subject to board approval, but we are looking at it very seriously at this point.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [24]

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And can you remind me what key capital ratios you pay attention to and what floors might be on those ratios?

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [25]

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Yes, I'll jump in on that. Total risk-based capital, because from a regulatory perspective, that's what we go over with our primary regulators. And in our long-term goal target for that, it's always been to be around 12%. And then, of course, what most of you care about, which would be the tangible capital ratio of 8%. And we feel like those levels give us the opportunity to keep some powder dry and be strategic as opportunities present themselves.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [26]

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Okay, that's helpful for the update. And then just one last housekeeping one for me. Given the switch that happened between expenses and income and everything, and the fluctuations that's causing hard revenue and there is -- it looks like a big increase between 2Q and 1Q. Is that outside of the interchange impact going forward of steady and sustainable level where we were in 2Q?

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [27]

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Yes. there wasn't anything in Q2 that comes to mind for me that jumps out as something that I wouldn't think would be sustainable prior to, obviously, the reduction of the interchange rate related to Durbin.

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Operator [28]

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Next will be a follow-up question from Mr. Matthew Clark.

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Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [29]

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Just had a couple of follow-ups on the pipeline and how that looked relative to last quarter. I'm assuming year-over-year would be less meaningful because PCBK wasn't in there, but just wanted to get a sense for the pipeline going in the second half.

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [30]

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Yes, the pipeline continued to build through the second quarter. And I guess how I would cage it is that it's to our satisfaction. So we're pretty pleased with where the pipeline is. But it's always subject to execution and closing. And so -- but at this point, from a production standpoint, feel pretty good. I think we're still going to have the same headwinds that we have if we look at customer demographics, the attractiveness of our markets and the things that we've talked about for many years, really since the economy came out of the downturn is that we see a lot of our larger relationships have entered the phase of their life where they're ready to sell, and that creates some of the prepayment activity and lumpiness that we have when we look at growth on any specific quarter. But relative to the production engine, it's to our satisfaction right now.

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Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [31]

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Okay, and then just the expense to average asset ratio is something you guys pay a lot of attention to. And now that PCBK costs have been fully realized and you have been reinvesting in the business, so I guess, how do you think about that ratio maybe in the short term and even longer term?

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Gregory A. Sigrist, Columbia Banking System, Inc. - Executive VP & CFO [32]

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I think in the shorter term, I mean, I think the guidance Clint had given in the prior quarter, I think it was in the near term low 2 50s. I think that's the way we're thinking about it in the balance of the year. When we get out past that, I think it [barges] into the conversation on our investment spend and how we really want to think about the future, so I'm a little not comfortable giving guidance past the near-term at this point in time. But I think the, again near term, low 2 50s.

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Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [33]

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2 50s you said -- it's tough to hear you, sorry.

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Gregory A. Sigrist, Columbia Banking System, Inc. - Executive VP & CFO [34]

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Low 2 50s.

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Operator [35]

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Your next question comes from the line of Jon Arfstrom.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [36]

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In terms of just a follow-up on the pipeline question. You do have Pacific Continental, you do have some seasonality in there. But just stepping back, would you say the economy is strengthening at all? Or would you just call it consistently strong?

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [37]

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I'll take a stab at it, and then let Hadley, of course, correct me as necessary. I would say it's consistently strong. Some of the things that we're hearing and have been hearing from our business customers and, quite honestly, we see it ourselves as it's a very tight labor market. The competitive pressures for talented workers is tremendous. And we've heard that for a couple of years now that customers could increase their business 20%, 30%, they just can't find the workers, the skilled workers to do that. And then, in some cases, if you're in a certain industry, they can't find the workers that can pass the drug test because of legalized marijuana in Oregon and Washington. So that creates a dilemma. Of course, you've got Amazon, gets all the news here. But quietly, all the other tech companies that come to mind have satellite campuses and quite a presence in the King County market. A lot of that smaller activity in Portland market as well. So I just think it feels like it's consistently strong. And then the housing market is -- it's -- inventory is tight, prices are up. It feels different than it did in 2006 or '07, when it was fueled by a lot of speculation and -- I mean, it's just -- I think that with so much in-migration that we've had in the last 10 years and the strength of the economy that there's a little bit of pressure that's built up there.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [38]

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Good. That helps. And then I guess, a couple of other follow-ups. One on Aaron Deer's questions on deposit pricing. You probably had one of the best quarters in terms of holding deposit costs of anybody we've seen. Just curious what you're seeing in terms of magnitude and frequency of any exception pricing that you have to give up. Or has that really not been a factor for you?

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [39]

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I would say during the quarter, we saw both a little bit on the magnitude and increased frequency in those types of discussions than what we had in the previous couple of quarters. So my sense is, is that it's real. We've said that, at some point, when rates become meaningful again, that people are going to pay attention to them. And to this point, as Andy would like to say, it's been just enough that it creates -- you have to make a rounding adjustment when you balance your account. But now it's more than a rounding adjustment. So we are seeing an uptick in that. I do think that we're going to continue to see some increases in various products, in various tiers of products. But once again, it's -- we don't anticipate having to move outside of what the market in general does.

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Jon Glenn Arfstrom, RBC Capital Markets, LLC, Research Division - Analyst [40]

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Okay, okay. Then just one final one. You talked about some of your new products or not products but relationship management, mobile marketing automation. Could you just give us an idea of how those have gone so far?

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [41]

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Sure. So with our relationship management tool, it's really the way that we've designed that project in several phases. And we're in phase I. And so we have some fairly robust functionality, but there's other things that we can incorporate and we plan to incorporate, but we're going to take a few quarters here with the system as is, stabilize it, increase the adoption rate across the company. And then begin to mature and increase the functionality of it. And then, one of the other things we talked about was marketing automation. And that ties in really well with the relationship management platform that we have. And we've done some things with that and really learned the power of what that marketing automation platform can deliver for us. But then that leads to some of the things that we have on the horizon in the coming year such as online account opening. To really capture the full power of that marketing automation platform, we need to have some transactional capabilities for account opening online that we currently don't have. So that's going to be a priority for us as well.

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Hadley S. Robbins, Columbia Banking System, Inc. - President, CEO & Director [42]

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A way to think about it kind of high-level is that we're on a journey to position the bank to compete more effectively in the digital space. As Clint mentioned, we do have functionality that's digital but what we're aiming to do is be more effective in generating revenue streams in the digital space, which will require also evaluating our process and backroom technology. So you really don't want to reposition your front end product set without thinking through how it impacts your operational capabilities so that you draw full benefit of your new product set. So we're working on those things in phases, as Clint mentioned.

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Operator [43]

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There are no further questions at this time. Presenters, you may continue.

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Clint E. Stein, Columbia Banking System, Inc. - Executive & COO [44]

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That's it? Thank you, everyone.

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Operator [45]

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Ladies and gentlemen, thanks to our participants for joining us today. We hope you found this webcast presentation informative. This concludes our webcast, and you may now disconnect. Everyone, have a good day.