Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Columbia Banking System Inc (COLB, Financial) achieved significant expense reductions, totaling $264 million in annualized savings over the past 18 months.
- The company reported a stable net interest margin of 3.56% for Q2, within the estimated range of 3.45% to 3.60%.
- Deposit campaigns have been successful, generating nearly 6000 accounts and $345 million in new deposits, with a significant portion being noninterest bearing.
- The loan portfolio showed stable performance, with a 22% improvement in 31 to 89-day delinquencies and a decrease in nonaccrual loans.
- Core fee income pipelines are expanding, with growth across categories such as treasury management, commercial card, merchant services, and international banking.
Negative Points
- The company experienced a seasonal decline in noninterest bearing deposits due to tax payments and corporate distributions.
- Provision for credit loss was $32 million for the quarter, indicating ongoing credit risk concerns.
- The cost of interest bearing deposits increased to 2.97% for the quarter, reflecting ongoing pressure on deposit costs.
- The company is still facing challenges in the residential mortgage portfolio, with an increase in 90 plus day delinquencies due to the expiration of COVID-related designations.
- Despite the progress, the company remains in a liability sensitive position, which could be impacted by future interest rate changes.
Q & A Highlights
Q: Can you help us think through the margin outlook a bit more?
A: Our margin outlook remains consistent with last quarter, largely dependent on deposit flows. If we see seasonal strength in noninterest-bearing deposits in Q3, we'll be on the upper end of our range; otherwise, we'll be in the middle or lower end. Discount accretion was higher in Q2, which we don't expect to recur unless there's a significant rally in the bond markets.
Q: Would you welcome a couple of rate cuts in terms of the margin outlook?
A: Yes, it would be beneficial. We are liability sensitive and have positioned the balance sheet accordingly over the last year.
Q: Can you talk about what's worked well in your deposit initiatives and overall deposit cost pressures?
A: Our small business group has done an outstanding job with outbound energy, generating new accounts and balances without special pricing. We've also seen rates track down slightly due to restrictive pricing pressure on our bankers. The competitive environment has calmed down, making conversations with customers easier.
Q: Can you speak to the retention of deposits as you've been lowering rates and plans to do more?
A: Retention has been extremely good, with 80-85% of CD balances being retained. We continue to look for opportunities in the competitive market and work on exceptions as needed.
Q: Are there any other transactional books you may be interested in selling to optimize the balance sheet further?
A: Yes, we are always looking at opportunities to optimize the balance sheet. We have cleaned up a lot of transactional loans over the past year and will continue to do so as opportunities present themselves.
Q: How do you think about the loan pipeline and demand in your markets?
A: The pipeline remains consistent with last quarter, with a shift from CRE to C&I. Demand is relatively benign, but there are pockets of optimism in the middle market. We expect low single-digit loan growth through the balance of the year.
Q: Can you elaborate on the amount of the loan portfolio reviewed and any surprises?
A: No surprises. Our commercial real estate portfolio is performing well, and we are proactive in addressing potential repricing and maturities. We look at current rent rolls and update values internally.
Q: Can you speak to the momentum in core fee income and the outlook for the rest of the year?
A: Core fee income is up 7% quarter-over-quarter and 14% year-over-year, driven by treasury management, commercial card, merchant services, and international banking. We expect this growth to continue.
Q: What were the triggers for the $7.7 million incentive comp reversal?
A: It was part of our expense initiative, correlating compensation programs to driving shareholder value. When we terminated or altered the programs, we reversed the accrual.
Q: Should we think that a core run rate on salaries and benefits this quarter would be closer to $152-153 million?
A: Yes, excluding the $7.7 million incentive comp reversal, the normalized level of operating expense for Q2 would be $270.2 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
