Pacific Premier Bancorp, Inc. (COLB) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Columbia Banking System First Quarter 2025 Earnings and Pacific Premier Bancorp Acquisition Announcement Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. At this time, I'd like to introduce Clint Stein, President and CEO of Columbia to begin the conference call. Please go ahead.

Thank you, Delim. Good afternoon, everyone. Thank you for joining us as we review Columbia's first quarter results and the announced acquisition of Pacific Premier Bancorp. The news releases and corresponding presentations are available on our website at columbiabankingsystem.com. During today's call, we will make forward-looking statements, which are subject to risks and uncertainties and are intended to be covered by the safe harbor provisions of federal securities law. For a list of factors that may cause actual results to differ materially from expectations, please refer to the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures, and I encourage you to review the non-GAAP reconciliations provided in our earnings materials. I want to thank each of you again for joining us on short notice. I'm eager to get to our discussion of Pacific Premier, an acquisition which I'm excited to talk about, but we also have another solid quarter of results to share with you. Our consistent repeatable performance in 2024 carried through to the first quarter of '25. Our results reflect our disciplined focus on relationship banking as our teams work toward long-term balanced growth in deposits, loans and core fee income. Our net interest margin contracted modestly as anticipated in the first quarter, given customer cash usage in December that carried through into January, but the positive effects of our retail and small business deposit campaigns as well as growing commercial balances offset these impacts, defined seasonal norms with $440 million in net customer deposit growth for the quarter. Loan origination volume was up 17% from the first quarter of 2024 as momentum from the fourth quarter carried through into the new year. Our banking teams continue to win new business with new and existing customers. However, total loan balances were relatively flat as of quarter end due to higher prepayment and payoff activity. Period-end totals were also muted by our continued focus on pushing the transactional real estate loans discussed in previous quarters off our balance sheet. Beyond the nonrecurring items that impacted our expenses in the first quarter, Columbia maintained its disciplined cost culture while continuing to reinvest in our growing franchise. We opened our first retail branch in Colorado in March in support of the banking teams that have already been offering our full suite of products and suite services in the market since 2022. We'll continue to fine-tune our branch footprint and expand in geographies where we see opportunities. On that point, today, we announced our partnership with Pacific Premier. With this acquisition, Columbia will become a $70 billion in assets franchise and pick up a complementary set of products and services to support our growing customer base. Our 8-state Western footprint remains intact but a Pacific Premier's footprint is heavily weighted in Southern California, we accelerate our strategic goals in this market by a decade or more. I'm not going to take you through a page turn presentation of the deal deck, but I will reference certain key slides during my remarks. Slide 4 in the deck highlights the highly complementary footprints of Columbia and Pacific Premier. I've previously discussed Columbia's expansion plans in Arizona, Colorado, Utah and Southern California. A de novo branching strategy accomplishes our coverage goals in the first 3 states. But Southern California is different. There are 13 million people in the Los Angeles market alone, which is more than Washington and Oregon combined. And there are over 20 million people in the broader Southern California market. Pacific Premier Southern California footprint fills in our Western reach from Canada to Mexico and it enhances our presence in other growth markets like Las Vegas and Phoenix. This acquisition provides the physical footprint to support our Southern California banking teams who have done a phenomenal job with limited infrastructure. It also provides expanded capabilities to the PPBI team through broader product offerings and the benefits of a much larger balance sheet. Columbia's deposit market share position in Southern California moves from 51 to #10 on a pro forma basis, as outlined on Slide 8. Ron will cover the numbers behind this financially attractive acquisition in greater detail. But as part of the all-stock transaction, Pacific Premier shareholders will receive a fixed exchange ratio of 0.915 of share of Columbia stock for each Pacific Premier share. Following the deal's closing, Pacific Premier shareholders will own 30% of the combined company and Columbia shareholders will own 70%. Notably, we expect the transaction to have minimal impact on Columbia's capital ratios, and we do not need to raise additional capital to support the deal. Columbia's executive leadership team remains intact and 3 Pacific Premier directors will join Columbia's Board, including Steve Gardner, Pacific Premier's Chairman and CEO. The combined organization will operate under the unified brand of Columbia Bank, as Umpqua Bank will change its name to Columbia Bank later this year. The Columbia Bank name aligns with our holding company name and other brands the bank operates today simplifying our family of brands and ensuring brand clarity as we deepen our presence throughout the West. Beyond double-digit EPS accretion and a short earn-back period, this transaction represents a strategically compelling partnership as Slide 5 outlines. Columbia and Pacific Premier are like-minded business banks that share a relationship-based operating philosophy. The banks have nearly identical low-cost deposit compositions, including a top quartile percentage of noninterest-bearing deposits. Pacific Premier's products and service offerings are additive to Columbia's as we strive toward a larger contribution of fee income to our revenue stream. Pacific Premier's Custodial Trust business complements our existing wealth management platform, adding new capabilities and revenue-enhancing opportunities. We'll also add Pacific Premier's attractive HOA Banking, Escrow and 1031 Exchange businesses, driving additional fee income and adding low-cost core deposits as detailed on Slide 10. Execution risk for this transaction is low. It is predominantly an expansion in existing markets with limited overlap, and we expect very little disruption to depositors, borrowers and our banking teams. Companies have similar credit cultures founded on conservative underwriting, robust review processes and relationship-centric banking. Our thorough due diligence process confirms significant alignment in our credit approach, go-to-market strategy, operating philosophies and cultures. In addition, both companies have significant acquisition experience and integration talent, so we expect a smooth combination in every respect. I want to take a moment to address heightened macro uncertainty and the recent market volatility. Columbia's consistent approach to banking is a key contributor to our success through business and credit cycles. Our conservative and disciplined approach to building a diversified and granular balance sheet anchored by enduring customer relationships has historically allowed us to thrive during volatile periods. Our company has grown stronger as we have gained scale, talent and process improvement through the mergers and acquisitions that have shaped Columbia over the years. Through it all, we have maintained our culture, supporting our growing customer base, maintaining our strong credit profile and building a superior core deposit franchise. I want to thank our associates for their hard work in delivering another solid quarter of operational results. Their accomplishments contribute to my enthusiasm for our future. Our pending acquisition of Pacific Premier accelerates the organic opportunities in front of us as we continue to grow our customer base throughout our 8-state Western footprint. Together, we continue to strive toward consistent, repeatable top quartile performance in support of long-term shareholder value. I'll now turn the call over to Ron.

Okay. Thank you, Clint. I'll begin with a review of the first quarter's results. We reported first quarter EPS of $0.41 per share and operating EPS of $0.67, which excludes the previously disclosed legal settlement of $55 million, $15 million in severance expense and other fair value and hedging items detailed in our non-GAAP disclosures, which I encourage you to review. Our operating return on tangible equity was 15% while operating PPNR was $212 million. As Clint noted, our bankers activity helped offset typical seasonal deposit contraction as customer cash usage in December carried through into January. Balance generation from our small business and retail campaign and other growth in commercial deposits drove $440 million in customer deposit growth during the first quarter. Growth in relationship-based accounts enabled us to repay $590 million of wholesale funding, inclusive of broker deposits and the favorable mix shift benefited our net interest margin later in the quarter. As we discussed on last quarter's call, seasonal deposit flows led to 4 basis points of NIM contraction to 3.60% in the first quarter. Wholesale repayments were largely executed in March. Our provision for credit loss was $27 million for the quarter, and our overall allowance for credit losses remains robust at 1.17% of total loans or 1.32% when including the remaining credit discount. Noninterest income was $66 million for the quarter, with the change from Q4 mostly related to fair value swings given interest rate changes. On Page 16 of our earnings release, we detail the nonoperating fair value changes. Excluding those items, our operating noninterest income of $56.9 million for Q1 was up $2 million as last quarter's loss on sale of loans did not repeat. Total GAAP expense for the quarter was $340 million while operating expenses were $270 million, with the variance detailed on Page 16 of the earnings release. Seasonally higher payroll taxes and elevated legal expense separate from the legal settlement drove a $7 million increase from the prior quarter. Before taking today's merger announcement into consideration, we continue to expect our operating expense, excluding CDI amortization to be in the $1 billion to $1.01 billion range for 2025. And lastly, our tax rate was impacted by nondeductible expenses during the quarter. We expect it to remain in the mid-25% range on an operating basis for the remainder of 2025. Turning now to the proposed transaction with Pacific Premier. Slides 21 and 22 in the deal deck detail a diversified pro forma loan portfolio and the similar deposit profiles Clint discussed. Slide 18 lays out key deal-related financial assumptions. We begin with consensus estimates for Columbia and Pacific Premier, and we expect to realize approximately $127 million in pretax cost savings, which represents 30% of Pacific Premier's noninterest expense base. We expect 75% of savings to be phased in during 2026 and 100% thereafter. As Clint outlined, we expect to realize revenue synergies given opportunities across our combined customer base, though none are included in our announced financial projections. We expect onetime after-tax deal-related costs of $146 million. Fair value and interest rate marks, which will be accreted over the remaining life of the assets include rate-related write-downs of $449 million on Pacific Premier's gross loan portfolio, $327 million on held-to-maturity securities and $91 million related to available-for-sale securities. We also anticipate a $25 million reversal of existing marks on Pacific Premier's acquired loans, a $12 million write-up to fixed assets and an $11 million write-up of time deposits, which will be amortized over approximately 1 year. The $96 million credit mark, which is equivalent to 0.8% of Pacific Premier's gross loan portfolio is allocated 50% to purchase credit deteriorated or PCD loans and 50% to non-PCD loans. As with interest rate marks, the non-PCD mark will accrete into interest income over the remaining life of the loans. We expect to realize an initial provision expense of $48 million on non-PCD loans immediately following the transaction's closing. The core deposit intangible is estimated at 3.3% of Pacific Premier's core deposits, and it will be amortized over 10 years using a sum of the year's digits calculation. Lastly, Pacific Premier intends to call its outstanding subordinated debt prior to the transaction closing. These assumptions drive our expectations for 14% EPS accretion in 2026 and 15% in 2027 based on consensus estimates. We project 7.6% of tangible book value dilution and a 3-year earn-back period. Please refer to the appendix for a reconciliation of the metrics I just discussed. Slides 14 and 15 outline the significant value creation and implied equity value upside this transaction offers. Given Pacific Premier's excess capital position, we expect limited impact to our capital ratios at closing. And as Clint noted, we will not need to raise additional capital. I will now turn the call back over to Clint.

Thanks, Ron. As you've heard me say many times before, the criteria Columbia considers in any transaction are that it makes financial sense for our shareholders, it is complementary or additive to our business model, and it needs to be culturally compatible. Our partnership with Pacific Premier is consistent with all of those criteria. Our focus remains on optimizing our financial performance to drive long-term shareholder value. Our capital position continues to build, and our regulatory ratios are expanding in line with our expectations. Our CET1 and total capital ratios were 10.6% and 12.8% at quarter end, well above our long-term targets. Our operational performance continues to demonstrate our ability to organically generate capital, well above what is required to support prudent organic growth and our regular dividend. We expect our acquisition of Pacific Premier to enhance our capital generation capabilities and drive additional flexibility for future return to shareholders. This concludes our prepared comments. Chris, Tory, Ron, Frank and I are happy to take your questions on our first quarter results, and Steve Gardner is with us for acquisition-related questions. Delim, please open the call for Q&A.

[Operator Instructions] Our first question comes from the line of Chris McGratty from KBW.

Clint, I got -- I guess, an opening question for you. You're roughly 2 years removed from the close of the Umpqua deal. I guess I'm interested in what experience you can bring from that deal to this deal? I know you talked about this being a little bit of a market extension, but maybe the upside potential and then maybe the risk that you're monitoring.

Chris, we have a slide in the deal deck that highlights our M&A experience. And when I say ours, specifically Steve's M&A experience and my M&A experience, but also that of our team. And since 2010, each organization has done 10 -- individually done 10 acquisitions. And so with each one of those you learn something and you have a playbook. What's unusual here is to have a counterparty that is as seasoned or more seasoned than what we are. And so when you look at that track record, it gives you a lot of confidence in your ability to adapt to whatever comes at you that's a surprise because there's always something. But more specific to the merger integration that we wrapped up. When I started talking last summer that the integration aspects, the social aspects of the Columbia Umpqua integration were largely behind us and conventional thinking is it's a 2-year process for that to happen. So I feel like we accomplished it about 6 months ahead of time. You look at the consistent operating performance that we drove throughout '24, carried that into the first quarter here of '25. And so everything that we've experienced and what we've been communicating over the past several quarters is that we're in a business-as-usual operating mode that the integration was fully behind us. And it was a much heavier lift because if you think about every single individual in both companies was impacted by the Columbia Umpqua merger. Here, there's still an impact, but it's not -- it doesn't impact and distract or have the potential to distract every single person doing every single job in both companies. So I don't want to make light of any integration is challenging, but also Steve and I have spent a lot of time talking about and speaking with key members of this team about how to make sure that we execute flawlessly on this, and we have a great plan. So I'm just very confident in our ability to do this. And I think the environment is also conducive to doing it as well.

Great. And then I guess my follow-up would be a little bit of a regulatory angle, right? You're going to be $70 billion in assets pro forma. I guess two-part question. Is there any expenses either gross or net that you're allocating to preparing for $100 billion? And then secondarily, what's the CRE concentration going to be pro forma? I know that's a bigger issue once you get closer to $100 million, and Steve was right around $300 million. So I'm interested in that kind of pro forma number.

Yes. So we have a road map in terms of preparing as we skate towards $100 billion. And that road map was put in place really as we cross $50 billion. And it doesn't mean that we've significantly ramped up expense or that we'll need to significantly ramp up at $70 billion. So there's not like an expense cliff that comes with this. But what it does mean is that we have to start skating to where the puck is going because there's no phase-in period for the regulatory aspect of crossing $100 billion. At $70 billion, my argument would be we're only 70% of the way there. But I do think that we'll accelerate some of the components on our road map, but it's nothing that will be a meaningful adjustment to your expense models or anything like that at this point in time. And then we just have to wait and see. There's a lot of moving pieces right now in the regulatory framework. And $100 billion used to be $250 billion. And I don't know if that happens again. But I think that there's just -- we're in pretty consistent conversations and constant contact with our regulators at the regional office as well as nationally. And so I think that in the time period that we're going through waiting to close this, thresholds could be different, but we're not counting on that, just so you know.

Great. And then the pro forma CRE, if you have it.

Yes. I think it's [ 3.30%, 3.25% ]. And if you take out the multifamily, which both companies' multifamily books are pretty much the same, workforce housing, rock solid credit, I think that then that number drops down to [ 1.68% ] or somewhere in that level.

Our next question comes from the line of David Feaster from Raymond James.

Obviously, this is a very complementary deal. It brings some nice fee income lines, which you alluded to, some new lending verticals, expands into some markets that you were already going to. You touched on a few of those things that Pacific Premier brings. I was hoping you could elaborate maybe on where you see the most opportunity to add value, utilizing some of their core competencies across the combined franchise or leveraging Columbia's expertise across their footprint. Just kind of curious where you see -- where are you most excited about?

I'll start and then see if Chris and Tory want to actually give you more details. The thing that excites me the most is, and I said it in my prepared remarks, is this accelerates what we had hoped to be able to achieve in Southern California, in particular, by over a decade. And that's just not something we're putting -- we're saying just because it is impactful. But it's been about 1.5 years that we've been trying to solve for how do we get more infrastructure for the bankers that we already have in that market. And I said in my comments that they've done a phenomenal job they have with very little -- very, very limited infrastructure south of the Great Line. And so for 18 months of work and trying to find the right places and figure out where our existing customers are and good prospective customers, we identified less than half a dozen sites at that point in time. And so if you just roll that forward and think about how do you get and build a footprint, that's not only the sheer number of locations, but the size and scale of what Steve and his team have built in that market, it's easily a 10-year push to do that. And then when you combine that with some of their businesses that -- where they're just ahead of us in things -- HOA banking is one area that Chris and some of his team have been trying to unlock the secret sauce to that. And of course, Steve and Pacific Premier team have a very robust platform there. And there's other things. And then also, we think about some of the things that we're doing on the small business side that have been impactful on our current operations over the past 5 quarters and how we can leverage that and have that as an accelerator of growth. So I've kind of given you the appetizer now. I'm going to step back and let Tory and Chris serve up the main course on what the specifics are.

Yes. Thanks, Clint. It's Tory. I'll jump in real quick. I mean I've been honestly salivating over the Southern California market for a decade and just the sheer number of companies of all sizes, the density of it, it's just such a wonderful market to be able to be a part of and to be able to grow into. We will immediately get brand awareness strength and just share in the market, which is just going to support both of us as we kind of come together to grow. I mean, specifically, you think about some of the product capabilities that we combined will be able to expand. You've got the leasing business. I think a little different offering on the commercial card front. You've got international banking front just a little bit different as we come together. You've got the growth from the scale of our balance sheet. So similar to Umpqua and Columbia coming together, we've got the capability to grow with those customers as they grow. And we're not going to pass on $20 million, $30 million deals as companies grow and need that from a lending standpoint. So we've got the capabilities to serve the customers as they grow, so we grow with them. So I think those things combined with inheriting a great group of bankers at Pacific Premier, I think, is just going to be a wonderful opportunity for us.

Yes. David, this is Chris. The acceleration of the HOA program is -- that's a huge one, light years ahead of where we are today. The complementary nature of the Custodial Trust business and being able to look at how our fiduciary business there and the investment aspects that we put into that as well. We've been expanding into the market down there, and this just accelerates that. Clint started touching on retail and small business. I think what we've shown in the last 4 campaigns of what we can do with our approach to the market, really looking forward to the opportunity of getting in there, training up the team and the relationship strategy and then seeing what we can do when we turn that loose. We've talked about the market and the potential. I think there's a lot of tremendous opportunity there. And then we'll be full service, and we'll bring the mortgage business into play as well.

That's great. And Columbia, you guys have had that slide in your deck talking about longer-term balance sheet optimization opportunities. Obviously, we're going to have the Pacific Premier balance sheet marked. Are you considering any asset sales or optimization efforts to help improve profitability and maybe accelerate that optimization that you've already identified? Or is that just some conservatism in these numbers and optionality that you guys have? I don't think that's in those pro forma numbers.

No, no, it's not. But David, as usual, you've zeroed in on some of the key aspects of -- it provides flexibility, not only does it act as a balance sheet restructure on the Pacific Premier balance sheet that then gets accreted back through earnings as opposed to being a hard coated loss, but it also creates flexibility for us to do some of the things that we've been talking about for the past year or 15 months on optimizing our balance sheet. And just the expanded earnings capability of a pro forma company also gives us the potential to look at things a little bit differently in that regard. And as we've mentioned, the deal doesn't require any additional capital. And we've already been growing capital fairly substantially over the last 2 years, and that growth should accelerate as well.

Okay. That's great. And then maybe just last one for me, a higher-level one. We've got an extremely volatile backdrop today. You've got the trade wars and all that going on. Just kind of high-level question for you, Clint, is how do you get comfortable underwriting credit today? I mean the good news is I've always looked at Pacific Premier as a very low-risk balance sheet, very conservatively underwritten. Obviously, there's a healthy credit mark here, too, through the marks. But I'm just curious, how did you get comfortable around the credit side of this deal?

Frank could hardly wait to unmute his mic. He's sitting next to me. And so what I'll start with is by saying I think you hit the nail on the head that Steve and his team have demonstrated -- a long demonstrated track record of superb credit performance. And that was something that we dug very, very deeply into. And because Frank likes to be bored and he likes to sleep well at night, and he's also very conservative and has a strong track record in credit and performance. So I don't want to steal his thunder, so I'll go on mute here and let Frank give you some details in terms of the extent of diligence that we conducted.

Thanks, Clint. I mean there's no thunder to be stolen here. I was really excited to see the results of the diligence that we conducted. We looked at over 61% of their loans and was pleased to find out, I mean, they really had a really similar underwriting and credit philosophy to us here. Their policies were very much aligned with ours. Their application of credit policy was very close to how we apply our credit policy. And probably the most important thing in underwriting through any credit cycle and the ability to continue to underwrite through any credit cycle is to have a leverage averse credit culture within the portfolio and underwriting. And it's not P&Ls that get companies through credit cycles. It's the strength of the balance sheet. And time after time, we saw within the credits evaluated a low leverage posturing of these companies similar to ours. So it gave me great comfort to see all of that and not a lot of existing issues within the portfolio either. So clearly, both companies stay ahead of potential credit problems by staying close to their customer base. And that's really the best way to do it is to stay in close contact with them. And I noticed a very active portfolio management and monitoring philosophy similar to ours. So I don't see any surprises with Pacific Premier's portfolio nor do I with ours. I think both companies are very much on top of their portfolios, and that will enable us to win through any cycle.

Our next question comes from the line of Matthew Clark from Piper Sandler.

Just my first question around your financial targets on a pro forma basis and maybe the lessons learned from the Umpqua deal. I know this is only about 1/3 of your size relative to Umpqua is a lot larger. But anything you might do differently this time around to ensure that you hit these targets because they look fairly strong.

Well, we start with all of your estimates, not yours specifically, but consensus estimates. And so I guess as we look at the environment changes, we had 550 basis points of rate increases from when we announced the Umpqua Columbia merger. Hopefully, one, I expect that we won't have a 17-month waiting period. And two, I would hope that we wouldn't see that kind of rate volatility. But I guess that's the thing that I want to make sure people are aware of is that consensus estimates have come down, I mean, for the industry. And so when we build these models and everybody does it, they use consensus estimates. And so there's always going to be some variability. Now in a stable environment, our forecasts are probably not terribly different, maybe a little better, maybe a little worse from period to period than what consensus is, but there was a whole seismic shift in the operating or the rate environment. And that's what really, I think, led to the differences. So even despite the volatility in the markets right now, what we're seeing from customers, if you don't watch the news and you're not on social media, life is still pretty good. And so we're not seeing any type of major pullback that's causing us to rethink what our current forecasts are. I know our advisers went through our forecasts, and I'm pretty certain that Steve's advisers went through his forecast and our forecast and we feel pretty good about that we're going to execute and deliver top-tier performance. Now as the market moves, maybe those ratios move around just -- because that's how it works. But on a relative basis, I think this is going to make a lot of money for a lot of people.

That's great. And then how about the buyback? I know we were kind of warming up to one sometime this year. Does this deal put that on pause? I mean, PPBI has a ton of excess capital, use all that capital over the marks. But given that your capital kind of on a pro forma basis isn't going to change materially, would you still consider a buyback this year?

So what I said during our first quarter conversations was that I was pretty confident that there would be capital actions during 2025. And I consider M&A a capital action. So without this, yes, it would have been extremely likely that we would have started initiating a buyback. Right now, our biggest focus is get the deal closed, see where the capital ratios are and then from there, relative to our long-term targets, make an assessment on a buyback. So I guess short answer is, yes, it probably does push it out. It's probably not a '25 event. But there's still some variables in terms of is this a year-end close or is it sooner than that type of close. And then where do the final ratios shake out. Right now, we expect a modest decline of 20, 30 basis points from our current levels and our current levels are modestly above where our long-term targets are. So we still would expect that we'd be above those targets. But I'd hate to go initiate a $300 million or $400 million buyback and then find out that rates moved around and we needed to go out and raise $200 million of capital and dilute our shareholders that wouldn't do us any good.

Yes. Fair enough. And then my last question, just around any potential divestitures on PPBI's balance sheet. I know Steve has scrubbed that portfolio quite a bit over the years. And -- but is there anything within there, maybe franchise lending or maybe even multifamily you might want to deemphasize? Or do you feel good about the whole portfolio?

We feel pretty good. I mean, Steve and team have done a good job of deemphasizing some of the things. I think that's the other piece of it is we've talked about that we've run our company and we've built our company to perform through cycles. And we've been waiting for a recession for many years. I don't consider 2020 a recession because of all the stimulus that was pushed into the system. And I think Steve also kind of built a fortress balance sheet and a tremendous amount of capital in anticipation of some form of economic slowdown. And as part of that, it wasn't just building capital, but it was also kind of pulling back from different areas of their portfolio. So it's super, super clean. Yes, on the multifamily side, we could reduce CRE exposures by selling some of those that are marked, but they're going to be at current market rates through purchase accounting. And there's absolutely 0 credit concerns on those. So I don't know that we would necessarily do that. There are some things in the bond portfolio that I think we're looking at that could provide some opportunities for us. And then like I said, I think on one of my earlier responses is, I think this gives us some flexibility with our existing balance sheet to maybe look at some things as well.

And I show our next question comes from the line of Timur Braziler from Wells Fargo.

I'm wondering how long the courting -- how long was the courting process for this transaction? And -- it's pretty impressive to get a deal announced in the midst of some of this volatility in the broader market. I'm just wondering more recently, did you have to update any deal terms, considerations, marks? Did you have to recalibrate any parts of the transaction just given some of the market turbulence year-to-date?

We'll have all of that in the S-4, but what I'll give you is that Steve and I started getting to know each other a couple of years ago. And just trying to assess my mindset at that time was executing on the task at hand, which was the integration of Columbia and Umpqua. And I think if you ask Steve, and you can because he's here in the room as a reminder, his thought process was probably around seeing if we could execute on the task at hand. And once we both were at a point of where I said, yes, we've executed and he was able to witness it from an external viewpoint, then we started talking about the possibility and when timing might be right. And I would say as a kind of a full-on approach and endeavor, really started at the first of the year. And so here we are in the fourth month. But lean back into our -- both of our experience in M&A, I think both teams and Boards were able to see through the short-term market noise and volatility and really focus on where the long-term shareholder value could be created. And so I think we ended up remarkably close to where we originally started. But yes, it was a wild ride with some of the market swings.

And I guess in that same way -- sure. Go ahead, Steve.

Sure. It was a very disciplined process. And I think importantly here that as 100% stock deal, this is a reinvestment opportunity for Pacific Premier shareholders and an extremely attractive one because we firmly believe the upside here is significant. And so when you get 2 companies that have very similar cultures, operational areas, it really -- it pays for a relatively low risk, low execution risk in our minds. And so yes, there was certainly a lot of volatility, both in the equity markets, also the debt markets, and that had an impact. But given that we had a long-term view here, and this is a reinvestment we thought the process throughout was very collaborative and really pleased where we ended up.

Okay. Great. And obviously, a very different transaction from Umpqua Columbia deal, but that took longer than expected here, you guys are expecting to close this in the second half of this year. I guess just can you privy us to some of the conversations that maybe haven't had with regulators and framing that closing time frame?

Yes. There's a body of evidence that continues to build on deals getting approved quicker and for banks either our size or to create banks that are our size. And so that gives us a lot of optimism. And the other thing is that we had fairly robust pre-flight conversations with the regulators, both at the regional office level as well as in D.C. And I'll say I left those meetings very encouraged that it would be a much more efficient and more transparent process than what we went through last time. And the other aspect of it is we don't expect a DOJ review. And the DOJ review cost us 11 months with the Columbia Umpqua1. So that right there is, I think, another data point that leads us to believe that getting this as close as a 2025 event is very likely.

Okay. And then just last for me, maybe for Frank. Just looking at the credit mark, it looks well below PPBIs' allowance level. Can you just talk to kind of the methodology in coming up with that 80 basis point mark relative to what looks like almost a 1.5% reserve for PPBI?

Yes. This is Ron. And as Frank mentioned earlier, obviously, quite a bit of -- significant amount of credit diligence and reviewing ACL modeling, economic forecast, et cetera. Given the weight of the multifamily portfolio, the losses just aren't there to support a higher level. That's how we weighted into that 80 basis points. In essence, 55% of the portfolio being multifamily is sitting at just under 60 basis points. And even that's probably overstated just given the long-term lack of credit issues expected in that portfolio were seen over the history.

And that also jived with the due diligence activity as well looking out 3 months, 6 months that also factored into that number.

And I show our next question comes from the line of Jon Arfstrom from RBC Capital Markets.

Usually, we'd be neck deep in the nuances of your earnings, I guess. But what would you call out in your earnings for the quarter that you think went well and what you need to work on further? And just curious your level of confidence in that '26 consensus estimate. I know it's our estimate, but what are some of the puts and takes to hitting that?

I think the thing that I really looked at is the deposit growth that we had and what we were expecting. As Ron said, guiding into the first quarter that our seasonality could be up to $0.5 billion of additional wholesale funding and to have the growth that we had and still see the seasonal activity, we could still see the patterns that we historically would because I mean, literally by month and by the point in time in the month, it's bonus payments or tax payments or distributions, you can see the flows and those flows are still there. So it wasn't like we didn't experience the seasonality, but the results of our bankers, both on the retail, small business side, but also on the commercial side, made a difference for us. And I think that as we look at -- and as we've said, really around the margin, which then drives a big portion of earnings, it's deposit flows that are going to determine our level of performance in that regard. So that's really encouraging. From my perspective, I would have liked to have seen some more C&I loan growth, but I'm encouraged by the year-over-year origination activity was up 17%. But unlike in the fourth quarter, where the activities translated into some really strong annualized growth, first quarter, it didn't. So Tory and I and Chris are really watching closely. There's still a lot of optimism in terms of second quarter, third quarter from our bankers and things they have in their pipelines. So -- but that's the area where I'm really looking. And then of course, we'd always love to have more core fee income. So I kind of hit the major ones. I'll look down the table and see if Tory or Chris want to add anything.

This is Tory. I think the only thing I'd add to it is, as Clint talked about, the pipelines are pretty strong. Actually, there's a lot of momentum. And we had some C&I growth, as Clint talked about, that didn't book in the first quarter that kind of got pushed last minute into the second quarter. But pipelines are strong. They're up about 10% from end of Q4. So a lot of good momentum. So I'd like to see that. And I think the fee income side, same. And we've got some really good pipelines, both loans, deposits and in core fee income. So I think things are looking pretty good for us going forward.

Okay. Good. Fair enough. And then, Clint, a follow-up on Chris McGratty's question. Just some of the feedback tonight has been that there's still more opportunity from the Umpqua merger. This could be a little bit too early I know that might be unfair, but curious where you think you're going to push your people just to make sure you are ready for the merger.

So the opportunity -- the unharvested opportunity from the Umpqua merger is really around process improvement. And we have a get better everyday type of mindset, not change for the sake of change, but that do things better, simplify, more efficient. And that work will never be done. I would say some of the things that we would have done maybe over a longer time horizon was the expense initiative and reorg that we did in the second quarter of last year. So rather than pacing that out, we did that over a 90-day time period. And so that lift was done. But really, that's the -- it's kind of operate our business, make it the best that it can be, and we're never satisfied. We always think we can do something better. But in terms of having our bankers on their front foot, out winning new business, competing in the marketplace, continuing to invest in the growth of our franchise, whether it's products and services or technology, our people, we're doing all of those things. And so it really is business as usual. So there's not a laundry list of things that we have to do and that any of those get delayed by this partnership with Pac Premier. The one other element that's there is just the balance sheet remix. And that's just a matter of when rates cooperate or these things hit their maturities, hit the bid and get it done. So that's not anything that's a distraction or requiring a heavy lift on the part of many of our team members that would then inhibit our ability to execute on this deal that we're talking about today.

Jon, this is Steve Gardner. You bring up an important point. This was very early on, one of the primary questions that we -- as a management team and a Board had and something that we did a lot of due diligence around was exactly where was the combined entity and where they ready to take this next step. And I can tell you, we have a high level of confidence in the organization. Otherwise, we wouldn't be here today.

Very helpful. And I would just say for the record, I'm happy about the name change. I think that's smart just to be under one brand for what it's worth.

And I show our next question comes from the line of Jared Shaw from Barclays.

Congratulations on the deal. I guess as we look at the CRE and the work that you all have done to bring that concentration level down. Should we think that going forward, you're just more comfortable sitting at a higher level of CRE with this combination? Or as sort of time progresses, should we expect to see that come back down to where you are now?

You're going to see a similar trend line that you've seen over the last couple of years post-Columbia-Umpqua merger. You're going to -- if you go back further in time and you look at deals that Columbia did, there was always a downward slope in the CRE ratio just because the banks that joined us typically had a higher level. Steve has a great slide in his IR deck that shows their history of doing the same thing of walking down those ratios over time. And so I think we're in alignment. And really, what's got the ratio above 300 is the multifamily book. We're not opposed to multifamily. We've talked about stability in the quality of the credit. But what I'm not a fan of is transactional multifamily. And that's where we still have on our balance sheet today, about $3.7 billion of transactional multifamily. And I think Steve is still working through some on his balance sheet as well. You move that down, and we're comfortably below $300 million. So that's why I say you're going to see that number come down. Now we're still going to do relationship-based multifamily for customers where we have a meaningful relationship. But that activity won't keep pace with the runoff that you'll see in those other portfolios.

Okay. All right. And then could you just speak a little bit about the cultural integration that you anticipate going forward and what the alignment looks like with the way the 2 banks do business and maybe especially around some of the incentive structures for RMs, is that similar to what you have at Columbia?

Yes. I'm excited about some of the components that Pac Premier has in their incentive structure because I think it can enhance ours. And not enhance from a standpoint of just pay people more money, but align closer to actual desired outcomes and results. And so I do think there's a value that's placed on performance and execution at Pac Premier, and those are the same things that we value. And so from a cultural standpoint, I think there's really good alignment. One of the things that we did, we gathered our senior leadership teams, what was that, end of February, and we kind of talked through some major components of each operation and each entity. And one of the things that Steve walked through was a deck on their culture. And the words are different, but the principles and the values are identical. And so when you start from a place like that, then I think that the nuance differences are very minor.

This is Tory. I just want to add one piece to this because I think one of the things that I'm most excited about from a cultural standpoint is I've been doing this business for a long time. And if you think about commercial bankers in particular, you kind of get 2 camps. One is somebody who just likes to make loans, and that's it. And the other is somebody who really understands full relationship banking. And culturally, both companies are completely aligned in the relationship banking aspect of that. And that is -- they're kind of simple words, but it's a much more difficult process from a sales standpoint. And the fact that we are both so aligned, I think, is a very, very nice fit and will allow us to grow the combined company much faster and much better than if it wasn't that way.

This is Chris. I'll add to that, Tory, that when you look at the cost of funds, you can tell a lot about how bankers go to market and very similar to the way that we've done it, it's not leading with rate. It's leading with value, it's leading with relationship. And that -- I said that comes through in the total cost of funds that you see on the Pacific Premier's books.

Yes. We inspired Chris to sharpen the pencil on deposit pricing and you saw Pac Premier's cost was lower than ours by a few basis points.

Yes. And just finally for me, when you look at L.A. and Southern California, is this the platform you sort of need to get to where you want to be? Or do you think that there will be additional hiring? Or is there an opportunity to take advantage of some of that market disruption from the last few years to grow the team beyond what it will be now?

I think it's -- I can answer that, that it's a little bit of both. So a $70 billion franchise that has coverage from the Canadian border to the Mexican border has the density that we will have in what's the world's fifth largest economy, top 10 pro forma deposit market share and then our position just broadly in the 8 Western states of -- there's 4 of us that are $70 billion to $80 billion. But the way that we go to the market is down the middle of the fairway commercially oriented bank. I think that creates a tremendous amount of opportunity. And we've seen it even with limited infrastructure in that market that we've seen the power of that market, and we've seen the power of being a $50 billion bank in that market. So I think it just acts as an accelerant for what we've done. And then you take what -- the talent and the experience in the market of Steve's people, and I think that it also kind of supercharges what they've been able to do. So I don't know that it's going to be a pretty dynamic company. It's going to -- I mean it's tremendous scarcity value, and we're going to be able to drive additional value in that, particularly in Southern California, but also throughout the 8 states that we have. And then when we look at what's been really kind of interesting and even when we were going through the merger and why we're in the waiting period for the Columbia-Umpqua merger, the level of talent that sought us out that wanted to come and be a part of what we were going to create. And all we had at that point was a promise to create the premier business bank throughout the West. This solidifies that. And I think then, again, we become the employer of choice in all of our markets.

This is Tory. I'm just going to add one other thing here. Like we -- there is so much disruption in the Southern California market, and we will continue. We're going to get 40-plus new RMs. They are going to be great teammates, and we'll just -- we'll keep looking for talent. And when we find talent that we think is accretive to the company and help take market share and grow, we're going to bring them into the bank. We just recently hired a couple of folks in Arizona. I think they're going to be fantastic for the bank to Clint's point, we just keep looking for people that want a really good home to have careers. And I think that's going to help us even further in Southern California.

And I show our next question comes from the line of Jeff Rulis from D.A. Davidson.

I guess checking in on kind of the plan to open more branches. I guess the first part of that question is, is that somewhat on hold with this deal? Do you see that through? You've got too much to juggle or not? And then maybe the second question, and I know, Clint, in fairly conservative and you're going to take care of one thing before the next. But I guess it begs the question, some of these states in the Rocky Mountain swath. You say you're accelerating Southern California expansion by 10 years with this transaction. Does that open up the discussion to look for M&A to accelerate the Utah, Colorado, Arizona expansion through M&A. So that's part two.

Jeff, it doesn't put our de novo branch expansion strategy on hold. We have 2 locations in the Phoenix area right now that are under construction. We have one in L.A. that I think also is a nice fit with Steve's existing footprint, and that will move forward. We just opened Denver last month. We have Colorado Springs coming online. So those things will continue to move forward. And that's really a different -- mostly a different group and a different part of our company that executes on those de novo branch openings. What this does is it allows us to pivot our focus from a de novo strategy in Southern California to the Intermountain states and looking at some opportunities there because, again, we see some disruption, and we've seen what our bankers have been able to achieve with limited infrastructure in those newer markets for us. And as I always say, they're earning the right for us to reinvest in them and help them grow their franchise. And so I don't want to give the keys to the strategic road map out across the conference call. But what I will say is your line of questioning aligns with our way of thinking is that it allows us to pivot those other resources that are not necessarily involved in M&A type stuff towards those newer markets and figure out some opportunities there to capitalize on what we're already seeing.

And I show our next question comes from the line of Anthony Elian from JPMorgan.

Clint, I'm curious what type of balance sheet growth you expect from the combined franchise, right? If I look at Columbia stand-alone, it's been pretty much a low single-digits grower the past couple of years. But you're adding Pacific Premier now, which is in higher-growth markets. So what level of balance sheet growth do you envision the combined company to eventually generate?

I think one of the things we'll have to work through is this rundown in those transactional real estate portfolios. And so that's both the multifamily as well as the single-family resi book. I've said publicly that single-family resi was too big of a portion of our portfolio. By virtue of being a bigger bank, that helps us kind of start to rightsize that. It gets us about halfway to where we want to be, which is 10% or less of the book. So bottom line loan growth will be muted some as those portfolios run off. I would say that if we're not on -- I would zero in on the C&I and the owner-occupied real estate portfolios. And if we're not growing at least the rate of double of GDP, then I'll be disappointed. So I guess if you have your crystal ball and you can tell me what GDP is, then I can tell you in 2 years and 3 years what I would expect for loan growth. But right now, GDP is expected to be pretty muted. So I'd say it translates into kind of low to mid-single digits.

Okay. And then my follow-up for Steve. I'm curious why Pac Premier is not going at this alone, right? I mean, Clint outlined the attractiveness of Southern California in his prepared remarks. And I would just think that there's already a ton of growth opportunities for you available given the number of banks that have exited that market in recent years.

Yes, it's a good question. I mean it's certainly one of the important areas that the Board has been considering from some time is that what is the best use of the excess capital that we have in looking at organic growth, potentially doing some tactical things around the balance sheet and the like. And ultimately, when we looked at it and in particular, this opportunity, it was readily apparent that this was -- would accelerate the returns that we generate for our shareholders in a very significant fashion. And I'll maybe follow back on one of Clint's comments earlier, certainly get a hold of the S-4 proxy registration statement and read through it. But really, it's the reinvestment that we have here is very attractive.

And I show our next question comes from the line of Andrew Terrell from Stephens.

If I could just ask maybe for Ron on the margin, just the -- from an organic standpoint, you had a big drop in the securities purchase accounting this quarter. I would assume that's mostly due to rate volatility that we saw intra-quarter. But if I step that back up from here, it seems like you could pretty easily get above your kind of margin guidance over the near term. Just maybe wanted to get a sense of where the purchase accounting is going to go or where you're expecting it to go? And then just your thoughts on the organic margin going forward.

Yes. Thanks. Great question on the bond portfolio. And it is interesting when you get a CPR that potentially is at 0, if not below. So it's just a complete slowdown in prepays could be related to the overall volatility in the markets. And that in essence, pushed out the discount accretion. It didn't go away. It just delayed the recognition. over time. So all else being equal, if there's stability, then yes, we would see potentially some additional discount accretion back between the last couple of quarters' levels, which would help on that front. But if it continues, I'd expect that to continue to stay at this depressed level for at least a couple of quarters. Overall, though, back to the NIM question, I was really pleased with the results in Q1. And like I said, we did pay down the $590 million of wholesale later in the quarter. So we'll see the benefit of that on NIM in Q2. But all else being equal, seasonally, historically, we're usually weaker in the first half of Q2, tax time, et cetera, it starts to build back up late in the second quarter. Third quarter is always the best month. So overall, in terms of the NIM in the last couple of quarters' levels, it's going to be subject to how deposits flow over that time period and were able to continue to reduce wholesale.

I think you guys -- last quarter, I think we were talking about a margin in the range of 3.55% to 3.65% kind of trying to that level. Any refresh to that?

This is what I just covered, yes. So subject to deposit flows over the coming couple of quarters, if those are better and we're able to reduce wholesale seasonally as would show maybe in Q3, then that's definitely potentially in the upper end of that range.

Congrats to both parties on the deal.

And I show our last question in the queue comes from the line of Nick Holowko from UBS.

Clint, just thinking about the CRE concentration conversation and the tendency for that to drift lower on the other side of deals that you've done in the past, along with your increased focus on growing relationship-type C&I lending. As you were thinking about potential M&A activity, how did you weigh a deal of this nature versus potentially something that might have been more C&I focused that could accelerate your efforts -- your growth efforts there?

I think Pac Premier is C&I focused. And I think it gets back to if you look at -- we'll zero back in on a comment that Chris Merrywell said earlier about the deposit composition and the pricing and the similarities. And so you look at the activities that the Pac Premier teams are engaged in today, and they very much align with a lot of what we do across our footprint today. So the multifamily is a work -- walk down position for Steve, and he, I'm sure will chime in on what their focus has been. But I think that it's similar to the multiyear kind of process I've talked about with what we'll do with some of the legacy Umpqua portfolio in multifamily and single-family resi, it takes time to burn that stuff off your balance sheet. And I think a lot of this that Steve has came through the prior acquisition that he did. And that's why I referenced the chart in his investor presentation where it shows over the years how they've walked that down. So -- and I don't know that maybe there's 1 or 2 other franchises that would be similar in terms of what Pac Premier brings from a C&I perspective, but there's nobody that brings the density and the core density in the L.A. and Southern California markets. I mean this is like such a natural fit that -- and I hate to index too much on the dots on the map, but when you go and you look at the slide deck and you see the complementary nature of our footprint and -- where Steve has a little bit here in the Northwest, and we have a little bit in Southern California. And together, it just fits. So probably not the answer you're looking for. But to me, I think this was the deal to do. I think it creates the most value long term for both sets of shareholders. And that's -- I'm not worried about the activities. What I want to do is make sure that we keep the great customers that Pacific Premier has and keep their talent and as we say, our focus is keep our people, keep our customers and drive value for the shareholders. And that's what we're going to be zeroing in on for the next 24 months.

Yes, Nick, this is Steve Garger. You may not be familiar with our institution, but similar to Columbia over the years, when we do acquisitions, it typically does take our CRE ratio above 300%. It was well below that prior to the Opus acquisition that we did in 2020 and took us up to 385%. We've been working that down, probably just given the nature of the -- what had occurred through the pandemic and in the subsequent years, it's come down a bit more slowly than we have anticipated, but we are historically a C&I-focused bank, and you'd really see that in spades through the deposit franchise.

Understood. And then maybe just one final question on the regulatory front. And just thinking from the perspective of the Umpqua deal not having been that far in the distant past, did you feel any sense of urgency to get a deal done in this more favorable regulatory backdrop that we're in? Or did the stars just really align for the deal to come to fruition?

Yes. I'm going to say it's the latter. The stars just aligned, and I'll go back to Steve and I are very experienced in M&A, and we know and understand the importance of developing a relationship with your counterparts at these different institutions so that when the stars appear that they may be aligning that there's already a familiarity and you can have good candid, honest dialogue and determine if the timing is right. And so as I said earlier in the call, it's been a couple of years that we've been talking and developing that relationship. And if it would have been 2026 that the stars aligned, I think we would have done this in 2026. It was 2027, we would have done it in 2027. But the fact is, is that everything just kind of aligned and now is as good of a time as any. And we believe that whether -- however you want to think about it, where we ended up from a go-forward pro forma ownership standpoint is kind of where we would have ended up regardless of when we did the deal.

Congrats on the deal.

I show no further questions in the queue. At this time, I'd like to turn the conference back to Jacque Bohlen, Investor Relations Director, for closing remarks.

Thank you, Delim. Thank you for joining this afternoon's call. Since we will not be hosting our traditional earnings call originally scheduled for tomorrow, please contact me if you have any questions or would like to schedule a follow-up discussion with members of management. Have a good rest of the day.

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