Q2 2024 Columbia Banking System Inc Earnings Call

Operator: Welcome to the Columbia Banking System second quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session to ask a question during the session. Jacquelynne Bohlen on your telephone.

Speaker Change: Welcome to the Columbia Banking System Second Quarter 2024 Earnings Conference Call.

Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.

Operator: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please note that today's conference is being recorded. I would like to introduce Jacquelynne Bohlen, and the Vestal Relations Director, to begin the conference call. Please go ahead.

Speaker Change: To ask a question during the session, press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please note that today's conference is being recorded. I would like to introduce Jackie Bohlen.

Jacquelynne Bohlen: Investor Relations Director, to begin the conference call. Please go ahead.

Jacquelynne Bohlen: Thank you, Lisa, and good afternoon, everyone. Thank you for joining us as we review our second quarter results. The earnings release and corresponding presentation are available on our website at columbiabankingsystem.com. During today's call, we will make forward-looking statements that 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 filing. We will also reference non-GAAP financial measures, and I encourage you to review the non-GAAP reconciliations provided in our earnings materials. We'll now hand the call over to Columbia's President and CEO, Clint Stein. Thank you, Jackie.

Jacquelynne Bohlen: Thank you, Lisa, and good afternoon, everyone. Thank you for joining us as we review our second quarter results. The earnings release and corresponding presentation are available on our website at ColumbiaBankingSystem.com.

Speaker Change: 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.

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

Clint E. Stein: Good afternoon, everyone. We have made considerable progress over the past three months on the initiatives we discussed in April. We enacted changes to the way we evaluate and approve deposit pricing, which resulted in increased stabilization in the cost of customer deposits. We also achieved more expense reductions during the quarter than we anticipated and communicated to you in April. When we spoke last quarter, I outlined the realization of $43 million in annualized net cost reductions from the operational effectiveness work that began during the first quarter.

Speaker Change: We will now hand the call over to Columbia's President and CEO , Clint Stein.

Clint E. Stein: Thank you, Jackie. Good afternoon, everyone. We made considerable progress over the past three months on the initiatives we discussed in April . We enacted changes to the way we evaluate and approve deposit pricing, which resulted in increased stabilization in the cost of customer deposits.

Clint E. Stein: We also achieved more expense reductions during the quarter than what we anticipated and communicated to you in April .

Clint E. Stein: When we spoke last quarter, I outlined the realization of $43 million in annualized net cost reductions from the operational effectiveness work that began during the first quarter.

Clint E. Stein: This work is the result of identifying opportunities for improvement after observing a year of the combined company's operation. These opportunities resulted in a lower headcount, given the elimination of redundant and overlapping positions, and have simplified our organizational structure.

Clint E. Stein: This work is the result of identifying opportunities for improvement after observing a year of the combined company's operations.

Clint E. Stein: These opportunities resulted in a lower headcount given the elimination of redundant and overlapping positions and have simplified our organizational structure.

Clint E. Stein: But our opportunities are not limited to just expense cuts. They include revenue-generating franchise reinvestment, and a cost-conscious culture enables us to make reinvestments that support our long-term growth and profitability outcomes. Annualized expense reductions year to date from our operational effectiveness work equate to $64 million on a net basis and $76 million on a gross basis.

Clint E. Stein: But our opportunities are not limited to just expense cuts. They include revenue generating franchise reinvestment.

Clint E. Stein: And a cost-conscious culture enables us to make reinvestments that support our long-term growth and profitability outlook.

Clint E. Stein: Annualized expense reductions year-to-date from our operational effectiveness work equate to 64 million dollars on a net basis and 76 million on a gross basis.

Clint E. Stein: We have roughly $6 million of remaining annualized expense reductions slated to be enacted in the third quarter, which will get us to our initiative goal of $70 million in net savings and $82 million on a gross basis. These savings are in addition to the $143 million in net and $188 million growth savings related to last year's merger. We have achieved $264 million in annualized savings over the past 18 months, with $45 million already reinvested in the future growth of our company.

Clint E. Stein: We have roughly $6 million of remaining annualized expense reductions slated to be enacted in the third quarter, which will get us to our initiative goal of $70 million in net savings and $82 million on a gross basis.

Clint E. Stein: These savings are in addition to the $143 million net and $188 million growth savings related to last year's merger.

Clint E. Stein: We have achieved $264 million in annualized savings over the past 18 months with $45 million already reinvested into the future growth of our company.

Clint E. Stein: We have $12 million of the $76 million of cost savings achieved in the first half of 2024 earmarked for franchise reinvestment that will occur over the next 18 months or so. We didn't execute on near-term expense initiatives at the detriment of the future growth and competitiveness of our company. At the end of the third quarter, our gross expense reductions will be $270 million to date, with the previously mentioned $57 million either already reinvested or allocated for reinvestment, resulting in net reductions of $213 million, or 58% above our original commitment of $135 million at the announcement of the merger. These steps were not taken with a survivor's mindset.

Clint E. Stein: We have 12 million of the 76 million dollars of cost savings achieved in the first half of 24 earmarked for franchise reinvestment that will occur over the next 18 months or so.

Clint E. Stein: We didn't execute on near-term expense initiatives at the detriment of the future growth and competitiveness of our company.

Clint E. Stein: At the end of the third quarter, our gross expense reductions will be $270 million, merger to date, with the previously mentioned $57 million either already reinvested or allocated for reinvestment.

Clint E. Stein: resulting in net reductions of $213 million or 58% above our original commitment of $135 million at the announcement of the merger.

Clint E. Stein: We executed this initiative and will continuously evaluate our expense base so we can thrive well into the future while delivering on our promise of being a high performer. Our headcount reductions were wrapped up during the second quarter. The remaining $6 million of planned expense savings will come from other operational sources during the third quarter. The savings I outlined are as of quarter end; they are not fully reflected in the second quarter's normalized operating run rate of roughly $270 million, which does not include the previously mentioned expected reinvestments in the coming quarters.

Clint E. Stein: These steps were not taken with a survivor's mindset. We executed this initiative and will continuously evaluate our expense base so we can thrive well into the future while delivering on our promise of being a high performer.

Clint E. Stein: Our headcount reductions were wrapped up during the second quarter. The remaining $6 million of planned expense savings will come from other operational sources during the third quarter.

Clint E. Stein: The savings I outlined are as of quarter end, they are not fully reflected in the second quarter's normalized operating run rate of roughly $270 million, which does not include the previously mentioned expected reinvestments in the coming quarters.

Clint E. Stein: While we have made substantial progress toward the annualized fourth quarter expense run rate we outlined in our March update, we are not adjusting that guide given these planned reinvestments. As we wind down the work to right-size our expense base, our ability to invest in our people, our franchise, and our suite of products and services remains fully intact. We believe these revenue-generating investments, along with a lower expense base, will continue to drive additional long-term shareholder value.

Clint E. Stein: While we have made substantial progress toward the annualized fourth quarter expense run rate we outlined in our March update, we are not adjusting that guide given these planned reinvestments.

Clint E. Stein: As we wind down the work to right-size our expense base, our ability to invest in our people, our franchise, and our suite of products and services remains fully intact.

Clint E. Stein: We believe these revenue-generating investments, along with a lower expense base, will continue to drive additional long-term shareholder value.

Clint E. Stein: The heavy lifting's behind us, and we're very optimistic about the future. The franchise we set out to create with the merger in 2021 is here. We're running it, and we're making it resilient to any operating environment.

Clint E. Stein: The heavy lifting is behind us and we're very optimistic for the future.

Clint E. Stein: The franchise we set out to create with the merger in 2021 is here. We're running it, and we're making it resilient to any operating environment.

Clint E. Stein: Our early success on near-term initiatives has not diminished our laser focus on regaining Columbia's placement as a top quartile bank as we drive toward long-term, consistent, repeatable performance. I'll now turn the call over to Ron. All right.

Clint E. Stein: Our early success on near-term initiatives has not diminished our laser focus on regaining Columbia's placement.

Clint E. Stein: as a top quartile bank as we drive toward long-term, consistent, repeatable performance.

Ronald L. Farnsworth: Thank you, Clint. We reported second quarter gap EPS of 57 cents and operating EPS of 67 cents, and our operating return on average tangible equity was 17%, while the operating PPNR was $219 million. Please refer to the non-GAAP reconciliations provided at the end of our earnings report and presentation for details related to our calculation of operating metrics. On the balance sheet, we have limited growth and reduced interest-bearing cash levels to target approximately $1.5 billion.

Clint E. Stein: I'll now turn the call over to Ron. All right, thank you, Clint. We reported second quarter gap EPS of 57 cents and operating EPS of 67 cents.

Ron: and our operating return on average tangible equity was 17 percent.

Speaker Change: while the operating PPNR was $219 million.

Speaker Change: Please refer to the non-GAAP reconciliations provided at the end of our earnings release and presentation for details related to our calculation of operating metrics.

Speaker Change: On the balance sheet, we have limited growth and reduced interest-bearing cash levels.

Ronald L. Farnsworth: Within deposits, we have more of a traditional seasonal decline in non-inspiring demand related to taxes and corporate distribution. Our net interest margin increased to 3.56% in Q2, though it was 3.52% for the month of June. Both were within our estimated range of 3.45 to 3.60%. Asset repricing more than offset a six basis point increase in interest-bearing liability. Our cost for spring deposits was 2.97% for the quarter and 3% for the month of June.

Speaker Change: to target approximately 1.5 billion dollars.

Speaker Change: Within deposits, we had more of a traditional, seasonal decline in non-interest bearing demand.

Speaker Change: Related to Taxes and Corporate Distributions

Speaker Change: Our net interest margin increased to 3.56% in Q2, though it was 3.52% for the month of June.

Speaker Change: Both were within our estimated range of 3.45 to 3.60 percent.

Speaker Change: Asset repricing more than offset a six basis point increase in interest bearing liability costs.

Speaker Change: Our cost in spring deposits was 2.97% for the quarter and 3% for the month of June .

Ronald L. Farnsworth: The quarter also benefited from higher prepayments, which resulted in higher discount accretion for the securities. Looking forward, we expect purchased accounting income to align more closely to the first quarter's level than the second quarter, as detailed towards the end of the earnings. Our projected interest rate sensitivity under both ramp and shock scenarios remains in a liability-sensitive position, and we expect our rates down deposit betas to approximate those experienced on the way up.

Speaker Change: The quarter also benefited from higher prepayment speeds, which resulted in higher discount accretion for the securities portfolio.

Speaker Change: Looking forward, we expect Purchased Accounting Income to align more closely to the first quarter's level than the second quarter's level.

Speaker Change: as detailed towards the end of the earnings release.

Speaker Change: Our projected interest rate sensitivity under both ramp and shock scenarios remains in a liability-sensitive position.

Speaker Change: And we expect our rates down deposit betas to approximate those experienced on the way up.

Ronald L. Farnsworth: Our provision for credit losses was $32 million for the quarter. The portion related to our leasing portfolio declined 18% this quarter to $17 million. Our overall allowance for credit losses remains robust, closing the quarter at 1.16% of total loans, or 1.35% when including the remaining credit. Total GAAP expense for the quarter was $279 million. Operating expense was $262.5 million, both down from the first quarter, reflecting the efficiency initiative Clint discussed earlier. As discussed last quarter, we've included the $12 million restructuring charge this quarter in non-operating expense. Included in operating expenses was a $7.7 million one-off non-recurring credit.

Speaker Change: Our provision for credit loss was $32 million for the quarter.

Speaker Change: The portion related to our leasing portfolio declined 18% this quarter to $17 million.

Speaker Change: Our overall allowance for credit losses remains robust.

Speaker Change: Closing the quarter at 1.16% of total loans or 1.35% when including the remaining credit discount.

Speaker Change: Total GAAP expense for the quarter was $279 million.

Speaker Change: Operating expense was $262.5 million.

Speaker Change: both down from the first quarter, reflecting the efficiency initiative Clint discussed earlier.

Clint E. Stein: As discussed last quarter, we've included the $12 million dollar restructuring charge this quarter in non-operating expense.

Ronald L. Farnsworth: Absent this, I'd peg our normalized level of operating expense at $270.2 million in Q2, down 5% from a normalized level of $286 million in the first quarter. We continue to expect our Q4 operating expense run rate to be in the annualized range of $965 to $985 million excluding CDI amortization. After adjustments, our normalized Q2 run rate was at the lower end of that range.

Clint E. Stein: Included in operating expense was a $7.7 million one-off non-recurring credit. Absent this, I'd peg our normalized level of operating expense at $270.2 million in Q2, down 5% from a normalized level of $286 million in the first quarter.

Clint E. Stein: We continue to expect our Q4 operating expense run rate...

Clint E. Stein: to be in the annualized range of $965 to $985 million excluding CDI amortization.

Frank Namdar: As Clint noted, we expect franchise reinvestment to drive the run rate higher, partially offset by additional cost savings related to near-term initiatives. I'll close with commentary about our regulatory capital position. Our risk-based capital ratios increased as expected in Q2. We expect to build capital above all long-term targets, which will provide for enhanced future flexibility. And with that, I'll now turn the call over to Frank. Thank you, Ron.

Clint E. Stein: After adjustments, our normalized Q2 run rate was at the lower end of that range. As Clint noted, we expect franchise reinvestment to drive the run rate higher, partially offset by additional cost savings related to near-term initiatives.

Clinton: I'll close with commentary about our regulatory capital position. Our risk-based capital ratios increased as expected in Q2.

Clinton: We expect to build capital above all long-term targets, which will provide for enhanced future flexibility.

Frank Namdar: The stable performance of our loan portfolio underscores the robustness of our through-the-cycle underwriting process and the caliber of our borrowers and sponsors, even as we continue the transition to a more typical credit environment after a prolonged period of exceptional quality. This quarter, we saw 31 to 89 day delinquencies improve by 22% to 86 million, with the rise in 90 plus day delinquencies primarily resulting from the expiration of COVID-related designations within the residential mortgage portfolio. Nonaccrual loans decreased by approximately $6 million, mainly due to reduced balances in the FinPAC portfolio.

Clinton: And with that, I'll now turn the call over to Frank.

Frank: Thank you, Ron. The stable performance of our loan portfolio underscores the robustness of our through-the-cycle underwriting process and the caliber of our borrowers and sponsors, even as we continue the transition to a more typical credit environment after a prolonged period of exceptional quality.

Speaker Change: This quarter we saw 31-89 day delinquencies improve 22% to 86 million.

Speaker Change: with the rise in 90-plus day delinquencies primarily resulting from the expiration of COVID-related designations within the residential mortgage portfolio.

Speaker Change: Non-accrual loans decreased approximately $6 million, mainly due to reduced balances in the FinPAC portfolio.

Torran B. Nixon: These overall classified loans remain stable because of our proactive and detailed monitoring of the portfolio. Complementing targeted reviews of specific asset categories like multifamily and office properties, has revealed no systemic issues across various industries, sectors, or geographic regions. Notably, there were effectively zero delinquencies in our entire non-owner-occupied and multifamily portfolios at the end of the quarter, and delinquencies within office properties specifically were remarkably low at roughly 40 basis points of the total office portfolio, with no charge-offs in either category.

Speaker Change: These overall classified loans remain stable.

Speaker Change: Our proactive and detailed monitoring of the portfolio, complemented by targeted reviews of specific asset categories like multifamily and office properties,

Speaker Change: has revealed no systemic issues across various industries, sectors, or geographic regions. Notably,

Speaker Change: There were effectively zero delinquencies in our entire non-owner occupied and multifamily portfolios at the end of the quarter.

Speaker Change: Delinquencies within office properties specifically were remarkably low at roughly 40 basis points of the total office portfolio with no charge-offs in either category.

Unknown Executive: Over all net chargers for the companies stood at an annualized rate of 32 basis points for the quarter, of which the bank contributed six basis points and fin pack 26 basis points. We remain very satisfied with the quality and directionality of our granular and diversified loan portfolio, which is highlighted in greater detail in our investor presentation.

Torran B. Nixon: Overall net charge-offs for the company stood at an annualized rate of 32 basis points for the quarter, of which the bank contributed six basis points and FinPAC 26 basis points. We remain very satisfied with the quality and directionality of our granular and diversified loan portfolio, which is highlighted in greater detail in our investor presentation. I will now turn the call over to Tori.

Speaker Change: Overall, net charge-offs for the company stood at an annualized rate of 32 basis points for the quarter.

Speaker Change: of which the bank contributed 6 basis points and FinPAC 26 basis points.

Tori: We remain very satisfied with the quality and directionality of our granular and diversified loan portfolio, which is highlighted in greater detail in our investor presentation. I will now turn the call over to Tori.

Frank Namdar: I will now turn the call over to Torrey.

Torran B. Nixon: Thank you, Frank.

Torran B. Nixon: Thank you, Frank. Targeted actions taken during the first quarter resulted in tighter control and a renewed discipline around deposit prices. Changes enacted directly contributed to the stability in our interest-bearing core deposit rates in the latter part of the first quarter and through the second quarter, as our teams continue to lead with service, not price, in their customer interactions. Our branches recently wrapped up a three-month small business campaign in late April, which generated nearly 6,000 accounts and $345 million in new deposits to the bank.

Torran Nixon: Targeted actions taken during the first quarter resulted in tighter control and a renewed discipline around deposit pricing. Changes enacted directly contributed to the stability and our interest bearing cord deposit rates in the latter part of the first quarter and through the second quarter, as our teams continue to lead with service, not price, in their customer interactions. Our branches recently wrapped up a three-month small business campaign in late April, which generated nearly 6,000 accounts and $345 million in new deposits to the bank. Importantly, 27% of those balances were non-interest bearing, and these accounts have collectively increased by roughly 20 million since the campaign ended in April.

Tori: Thank you, Frank. Targeted actions taken during the first quarter resulted in tighter control and a renewed discipline around deposit pricing.

Tori: Changes enacted directly contributed to the stability and our interest-bearing core deposit rates in the latter part of the first quarter and through the second quarter as our teams continue to lead with service, not price, in their customer interactions.

Tori: Our branches recently wrapped up a three-month small business campaign in late April , which generated nearly 6,000 accounts and $345 million in new deposits to the bank.

Torran B. Nixon: Importantly, 27% of those balances were non-interest bearing, and these accounts have collectively increased by roughly $20 million since the campaign ended in April. A new campaign was launched in June with over $110 million in new money coming to the bank through mid-July. As with the spring campaign, the summer campaign includes bundled solutions for customers without promotional pricing or special products.

Tori: Importantly, 27% of those balances were non-interest bearing and these accounts have collectively increased by roughly 20 million since the campaign ended in April .

Torran B. Nixon: A new campaign was launched in June with over $110 million in new money coming to the bank through mid July. As with the spring campaign, the summer campaign includes bundled solutions for customers without promotional pricing or special products. The new accounts enhance the granularity of our already diversified deposit base and provide numerous opportunities to deepen relationships over time as businesses grow and we fulfill their needs with additional products and services. Our cost of interest-bearing deposits increased by nine basis points during the second quarter to 2.97%. Compared to a 34 basis point increase during the first quarter, highlighting a significantly slower pace of increase following our actions.

Tori: A new campaign was launched in June with over $110 million in new money coming to the bank through mid-July.

Tori: As with the spring campaign, the summer campaign includes bundled solutions for customers without promotional pricing or special products.

Torran B. Nixon: The new accounts enhance the granularity of our already diversified deposit base and provide numerous opportunities to deepen relationships over time as businesses grow and we fulfill their needs with additional products and services. Our cost of interest-bearing deposits increased by nine basis points during the second quarter to 2.97%, compared to a 34 basis point increase during the first quarter, highlighting a significantly slower pace of increase following our action. Our cost of total deposits was 2.01%.

Tori: The new accounts enhance the granularity of our already diversified deposit base and provide numerous opportunities to deepen relationships over time as businesses grow and we fulfill their needs with additional products and services.

Tori: Our cost of interest bearing deposits increased by 9 basis points during the second quarter to 2.97%.

Tori: compared to a 34 basis point increase during the first quarter.

Tori: highlighting a significantly slower pace of increase following our actions.

Torran Nixon: Our cost of total deposits was 2.01%. And if we isolate our customer balances, 36% of which are non-interest bearing, our total cost of customer deposits was 1.56% in the second quarter. Our focus on relationship banking continues to benefit our performance in this higher rate environment. While recent pricing trends in our successful deposit campaign results are encouraging, the second quarter was also impacted by anticipated declines in non-interest bearing deposits balances due to seasonal pressures that include customer tax payments. Non-interest bearing balances were down 2% on both an end-apiriot and average basis in the second quarter. While pricing pressures have moderated compared to 2023, as the Fed funds rate has remained constant for the past year, persistent inflation continues to draw down customers' account balances.

Torran B. Nixon: And if we isolate our customer balance, 36% of which are non-interest bearing, our total cost of customer deposits was 1.56%. Our focus on relationship banking continues to benefit our performance in this higher rate environment. While recent pricing trends and our successful deposit campaign results are encouraging, the second quarter was also impacted by anticipated declines in non-interest-bearing deposit balances due to seasonal pressures that include customer. Non-interest-bearing balances were down 2% on both an end-of-period and average basis in the second quarter.

Tori: Our cost of total deposits was 2.01%, and if we isolate our customer balances...

Tori: 36% of which are non-interest bearings. Our total cost of customer deposits was 1.56% in the second quarter.

Tori: Our focus on relationship banking continues to benefit our performance in this higher rate environment.

Tori: While recent pricing trends and our successful deposit campaign results are encouraging, the second quarter was also impacted by anticipated declines in non-interest bearing deposit balances due to seasonal pressures that include customer tax payments.

Tori: Non-interest bearing balances were down 2% on both an end of period and average basis in the second quarter.

Torran B. Nixon: While pricing pressures have moderated compared to 2023, as the Fed funds rate has remained constant for the past year, persistent inflation continues to draw down customers' account balances. That said, our teams are focused on generating new business to offset this headwind, as evidenced by our ongoing campaigns and our proactive activity by our bank. Their success will be key to containing our deposit costs, regardless of whether we see any rate cuts from the Fed this year. Turning to the loan portfolio, relationship-driven growth remains our primary focus. Loan balances increased 2% on an annualized basis in the second quarter after adjusting for $95 million in targeted loan sales.

Tori: While pricing pressures have moderated compared to 2023, as the Fed funds rate has remained constant for the past year, persistent inflation continues to draw down customers' account balances.

Torran B. Nixon: That said, our teams are focused on generating new business to offset this headwind, as evidenced by our ongoing campaigns and our proactive activity buyer.

Tori: That said, our teams are focused on generating new business to offset this headwind, as evidenced by our ongoing campaigns and our proactive activity by our bankers.

Torran B. Nixon: There's success will be key to continuing our deposit cost, regardless of whether we see any rate cuts from the Fed this year.

Tori: Their success will be key to containing our deposit costs regardless of whether we see any rate cuts from the Fed this year.

Torran B. Nixon: Turning to the loan portfolio, relationship-driven growth remains our primary focus. Loan balance is increased 2% on an annualized basis in the second quarter after adjusting for a $95 million in targeted loan sales. Commercial lines of credit and construction draws activity drove the quarter's expansion. While our loan pipeline remains steady, our core fee and company plans continue to expand. We are seeing growth across categories including treasury management, commercial car, merchant services, and international banking, to name a few. The contribution of these line items to core fee income was up 7% on the quarter and 14% from a year ago.

Tori: Turning to the loan portfolio. Relationship-driven growth remains our primary focus. Loan balances increased 2% on an annualized basis in the second quarter after adjusting for a $95 million in targeted loan sales.

Torran B. Nixon: Commercial lines of credit and construction draw activity drove the quarters. While our loan pipeline remains steady, our core fee income pipelines continue to expand. We are seeing growth across categories, including treasury management, commercial card, merchant services, and international banking, to name a few. The contribution of these line items to core fee income was up 7% in the quarter and 14% from a year ago. We are also seeing tremendous traction with our Umpqua Smart Leads. Unquest Smart Leads use predictive analytics to help our teams capture additional business with our existing customer base through needs-based solutions.

Tori: Commercial lines of credit and construction draws activity drove the quarters expansion.

Tori: While our loan pipeline remains steady, our core fee income pipelines continue to expand. We are seeing growth across categories including Treasury Management, Commercial Card, Merchant Services, and International Banking to name a few.

Tori: The contribution of these line items to core fee income was up 7% on the quarter and 14% from a year ago.

Torran Nixon: We are also seeing tremendous traction with our unquaw smart leads. Unquaw Smart Leads use predictive analytics to help our teams capture additional business with our existing customer base through needs-based solutions. Our closed rate was up 22% between the first and second quarters. While incremental growth in a single product takes time to drive notable bottom-line performance, we are encouraged by the favorable trends and our collective products and services. Our bankers remain focused on the activities that drive balance growth and customer deposits, core fee income, and relationship-based loans.

Tori: We are also seeing tremendous traction with our Umpqua Smart Leads. Umpqua Smart Leads use predictive analytics to help our teams capture additional business with our existing customer base through needs-based solutions. Our close rate was up 22% between the first and second quarters.

Clint E. Stein: Our close rate was up 22% between the first and second quarter. While incremental growth in a single product takes time to drive notable bottom-line performance, we are encouraged by the favorable trends in our collective products and services. Our bankers remain focused on the activities that drive balanced growth in customer deposits, core fee income, and relationship-based loans. I'll now turn the call back over to Clint. Thanks, Tori.

Tori: While incremental growth in a single product takes time to drive notable bottom line performance, we are encouraged by the favorable trends in our collective products and services.

Tori: Our bankers remain focused on the activities that drive balanced growth in customer deposits, core fee income, and relationship-based loans. I'll now turn the call back over to Clint. Thanks, Tori. We remain committed to optimizing our financial performance to drive long-term shareholder value.

Clint E. Stein: On the alternative call back over to Clint.

Clint E. Stein: Thanks, Tory. We remain committed to optimizing our financial performance to drive long-term shareholder value. In line with our expectations, our capital position continues to build as our ratios expand. At a total risk-based capital ratio of 12.1%, the parent company is above our long-term target of 12%. The bank, however, remains modestly below at roughly 11.7%. Our TCE ratio was 6.8% quarter-end, up from 6.6% at March 31st, despite some modest adverse impacts from ALCI.

Clint E. Stein: We remain committed to optimizing our financial performance to drive long-term shareholder value. In line with our expectations, our capital position continues to build as our ratios expand. At a total risk-based capital ratio of 12.1%, the parent company is above our long-term target of 12%. The bank, however, remains modestly below at roughly 11.7%.

Clint E. Stein: In line with our expectations, our capital position continues to build as our ratios expand.

Clint E. Stein: At a total risk-based capital ratio of 12.1%, the parent company is above our long-term target of 12%.

Clint E. Stein: Our TCE ratio was 6.8% at quarter end, up from 6.6% at March 31st, despite some modest adverse impacts from AOCI. We continue to target a ratio closer to 8% before considering meaningful options for deploying excess capital. The second quarter demonstrates our ability to organically generate capital well above what is required to support prudent growth and our regular dividend, providing us longer-term flexibility for additional returns to shareholders. This concludes our prepared comments. Chris, Tory, Ron, Frank, and I are happy to take your questions.

Speaker Change: The bank, however, remains modestly below at roughly 11.7%.

Speaker Change: Our TCE ratio was 6.8% at quarter end, up from 6.6% at March 31st, despite some modest adverse impacts from AOCI.

Clint E. Stein: We continue to target a ratio closer to 8% before considering meaningful options for deploying excess capital. The second quarter demonstrates our ability to organically generate capital well above what is required to support prudent growth and our regular dividend, providing us longer-term flexibility for additional returns to shareholders.

Speaker Change: We continue to target a ratio closer to 8% before considering meaningful options for deploying excess capital.

Speaker Change: The second quarter demonstrates our ability to organically generate capital well above

Speaker Change: What is required to support prudent growth and our regular dividend, providing us longer-term flexibility for additional returns to shareholders.

Clint Stein: This concludes our prepared comments. Chris, Tory, Ron, Frank, and I are happy to take your questions now. Please open the call for Q&A.

Speaker Change: This concludes our prepared comments.

Operator: Lisa, please open the call for Q&A. Thank you. As a reminder, if you would like to ask a question, please press star 1-1 on your telephone. We also ask that you please wait for your name and company to be announced before you proceed with your question. The first question is coming from John Ashram of RBC Capital Markets. Your line is open. Hey, thanks. Good afternoon, everyone.

Speaker Change: Chris, Tori, Ron, Frank, and I are happy to take your questions now. Lisa, please open the call for Q&A.

Unknown Executive: Thank you.

Unknown Executive: As a reminder, if you would like to ask a question, please press star 1-1 on your telephone. We also ask that you please wait for your name and company to be announced before you proceed with your question.

Lisa: Thank you. As a reminder, if you would like to ask a question, please press star 1-1 on your telephone. We also ask that you please wait for your name and company to be announced before you proceed with your question.

David Feaster: The first question is coming from John, Ashram, of our BC Capital Markets; your line is open. Thanks. Good afternoon, everyone. Hey, it looks like a good quarter.

Speaker Change: The first question is coming from John Arfstrom of RBC Capital Markets. Your line is open.

Unknown Speaker: Hey, John. Hey, looks like a good quarter. Ron, maybe start with you.

John Ashram: Thanks. Good afternoon, everyone.

Ronald Farnsworth: Ron, maybe start with you. Can you maybe help us think through the margin outlook a bit more? I see the 350-2 margin you flagged in June. I hear you on a little less accretion, but you probably have a rebound and nine-interest variant.

John Ashram: Hi John . Hey, looks like a good quarter.

Ronald L. Farnsworth: Can you maybe help us think through the margin outlook a bit more? I see the 352 margin you flagged in June. I hear you on a little less accretion, but you probably have a rebound and non-interest bearing. So help us think through a good starting point or some of the puts and takes that you see on the margin outlook. Yeah, good question. And actually, really no change from the last quarter.

John Ashram: Ron, maybe start with you. Can you maybe help us think through the margin outlook a bit more? I see the $3.52 margin you flagged in June . I hear you on a little less accretion, but you probably have a rebound in non-interest bearing.

Ronald Farnsworth: So help us think through a good starting point or some of the puts and takes that you see on the margin out. there.

Speaker Change: Help us think through a good starting point or some of the puts and takes that you see on the Margin Outlook.

Ronald L. Farnsworth: It's really going to depend on deposit flows. Do we see that seasonal strength and arms-bearing strength in Q3 will be on the upper end of that range? If not, we'll be in the middle or on the lower end.

Ron: Yeah, good question. And actually, really, no change from the last quarter. It's really going to depend on deposit flows. Do we see that seasonal?

Speaker Change: Q3 will be on the upper end of that range, if not, we'll be in the middle or lower end. But I do want to flag the discount accretion was a bit higher in Q2. I don't expect that to recur unless you saw a meaningful rally in the bond markets.

Ronald L. Farnsworth: But I do want to flag that discount accretion was a bit higher in Q2, but I don't expect that to recur unless you see a meaningful rally in the bond markets. So, probably somewhere in the middle of the range.

Ronald L. Farnsworth: Okay, okay, good. That's helpful. And then, just to confirm, you guys would welcome a couple of cuts. It looks that way in your documents and your comments, but you'd welcome a couple of cuts in terms of the margin outlook. Uh, yeah, it'd be beneficial, obviously, in the initial income. We are a liability, position on the balance sheet that way over the last year or so. Will we be able to position for it when and if it ever comes? Okay, okay, good. And then, Clint or Tori, obviously, some decent success with the deposit initiatives. Can you talk about what's really worked well?

Speaker Change: so probably somewhere in the middle of the range. Okay okay good that's that's helpful and then just to confirm you guys would welcome a couple of cuts it looks that way in your documents in your comments but you'd welcome a couple of cuts in terms of the margin outlook

Speaker Change: Yeah, it'd be beneficial obviously to manage income, we are liability sensitive.

Speaker Change: We've been positioning the balance sheet that way over the last year, so we'll be positioned for it when and if it ever comes.

Torran B. Nixon: And what are you seeing in terms of overall deposit cost pressures? Thank you. Sure, John, this is Tory.

Speaker Change: Yeah, okay. Okay, good. And then Clint or Tori, obviously some decent success on the deposit initiatives. Can you talk about where it's really worked well and what you're seeing in terms of overall deposit cost pressures? Thank you.

Torran B. Nixon: I would say, I think there's a couple of things that work really well. And we mentioned in the call, and I think Chris maybe want to add in on this. I think our small business group within retail, the branch system, has done just an outstanding job just being, kind of having energy deployed outbound. And I think that the entire company's doing that.

Tory: Sure, John , this is Tory. I would say, I think there's a couple things that work really well, and we mentioned in the call, and I think Chris maybe want to, can add in on this. I think our, our,

Speaker Change: Small business group within retail the branch system has done just an outstanding job just being

Torran B. Nixon: I mean, it's been a year and a half, you know, as we kind of work through all the processes, you know, product knowledge, you know, infrastructure within the company, and just a ton of energy that's being deployed outbound. And they had some great results without, you know, without any special pricing or any other gimmicks. It's really getting out and hitting the street and kind of presenting the value of Umpqua Bank and what we can do for small businesses and what we can do for commercial customers to just bring their relationships over.

Speaker Change: kind of having energy deployed outbound. And I think the entire company's doing that. I mean, it's been a

Speaker Change: We've been doing this for about a year and a half, you know, as we kind of work through all the process, you know, product knowledge, you know, infrastructure within the company and just a ton of energy that's being deployed outbound.

Speaker Change: And they had some great results in, you know, without pricing, you know, without any special pricing or any other gimmicks, it's really getting out and hitting the street and kind of presenting the value of Umpqua Bank and what we can do for...

Torran B. Nixon: So we added a ton of counts and a lot of balances on the pricing front. I think this has been a constant since we employed some restrictive pricing pressure on our bankers within the footprint. We've seen rates continue to kind of... track down a little bit, you know, 5, 10, 25 basis points as we've had conversations with customers, one by one, by one. And I think the cost has been, I think we've done a really nice job kind of keeping the lid on costs. And I don't think there's, at this point, any additional outside pressure from many institutions that will bring that back.

Speaker Change: Small businesses and what we can do for commercial customers to just bring their relationships over. So added a ton of counts and a lot of balances. On the pricing front.

Speaker Change: I think this has been the very constant since we employed some restrictive pricing pressure on our bankers within the footprint. We've seen rates continue to kind of...

Speaker Change: track down a little bit, you know, 5, 10, 25 basis points as we've had conversations with customers.

Speaker Change: One by one by one, and I think the cost has been, I think we've done a really nice job kind of keeping the lid on cost, and I don't think there's...

Christopher M. Merrywell: So, Chris, I don't know if you have anything else you want to add to that. Yeah, thanks, Tori. Hey, John, it's Chris.

Speaker Change: at this point, any additional outside pressure from many institutions that would bring that back up. So Chris, I don't know if you have anything else you want to add to that.

Christopher M. Merrywell: You know, I think that what Tori's saying there leading into it, there are a ton of conversations that are going on every single day with our customers about what they're using the money for, how long they're looking for, what the current rate environment is, what the competitive environment is. And I think part of the competitive environment is definitely calmed down, which makes those conversations a little bit easier. It's not as frantic.

Chris: Yeah, thanks, Tori. Hey, John , it's Chris. You know, I think that what Tori's saying there leading into it, there are a ton of conversations that are going on every single day with our customers about what they're using the money for.

Chris: How long they're looking for, what the current rate environment is, what the competitive environment is. And I think part of the competitive environment is definitely calm down, which makes those conversations a little bit easier. It's not as frantic.

Christopher M. Merrywell: And it's a lot of hard work by our bankers that are out there each and every day doing that, and working with customers about where we go. If we get a cut, our customers, I think, will be ready because our bankers have been having conversations with them. And we'll see if that happens. Okay, thanks, guys. I appreciate it, people. Welcome.

Speaker Change: and it's a lot of hard work by our bankers that are out there each and every day doing that.

Speaker Change: The, you know, and working with customers about directionally where we go, if we get a cut, you know, our customers, I think will be ready because our bankers have been having conversations with them. And we'll see if that happens. So, yeah.

Operator: Thank you. One moment for the next question, and our next question will be coming from Matthew Clark of Piper Sandler. Your line is open. Hey, good afternoon, everyone.

Speaker Change: Okay, thanks guys, I appreciate it.

Speaker Change: Thank you. One moment for the next question.

Speaker Change: And our next question will be coming from Matthew Clark of Piper Sandler. Your line is open.

Matthew Timothy Clark: Amen. Amen. I guess on deposit costs, for my first question, it looks like you've lowered deposit rates and some of your consumer categories in early July. Can you speak to any kind of retention as you've been doing that and plans to do more? or not?

Matthew Timothy Clark: Good afternoon, everyone.

Matthew Timothy Clark: I guess on deposit costs, for my first question, it looks like you've lowered deposit rates and...

Speaker Change: Some of your consumer...

Matthew Timothy Clark: categories in early July I guess

Christopher M. Merrywell: Yeah, Matt, and Chris, thanks for the question. We really lowered them throughout the last few months. July was one piece of it, but it really started back in the late February stand time frame.

Matthew Timothy Clark: Can you speak to kind of retention as you've been doing that and plans to do more?

Matthew Timothy Clark: Matt, Chris, thanks for the question. We really lowered them throughout the last few months.

Speaker Change: July was one piece of it, but really started back in the late February stand time frame.

Christopher M. Merrywell: Retention has been extremely good. When you look at the promotion that, or excuse me, the campaign that Tori mentioned and all of those balances, new accounts that came in, they're actually growing without extra pricing. And then on the CD portion and things of that nature, we're still maintaining, retaining 80, 85% of those balances. And so, yeah, we're following it extremely closely. Commercials are experiencing the same thing.

Speaker Change: Retention has been extremely good. When you look at, I'll point to the promotion that, excuse me, the campaign that Tori mentioned and all of those balances, new accounts that came in, they're actually growing and without extra pricing.

Speaker Change: And then on the CD portion and things of that nature, we're still maintaining, retaining 80-85% of those balances. And so, yeah, we're following it extremely closely.

Christopher M. Merrywell: And again, we still have the flexibility to make exceptions and do things that make sense, but it's really working on that piece of it. We'll continue to look for opportunities in the competitive market where our posted rates are. And we'll continue to work the exceptions down as we can. And then, of course, pay attention to what our forward CD pricing is. Tori, I don't know if you want to add anything.

Speaker Change: Commercials experiencing the same thing and again we still have flexibility to make exceptions and do things that

Speaker Change: makes sense.

Speaker Change: But it's really, it's really working on that, that piece of it. We'll continue to look for opportunities in the competitive market of where our posted rates are. And we'll continue to work the exceptions down as we can. And then, of course, pay attention to what our forward CD pricing is. Victoria, you want to add anything? No, I think we're all set.

Ronald L. Farnsworth: No, I think we're all set. Great. And then on your brokered CDs and borrowings, they were both relatively flat in the quarter, to just speak to whether or not those might start coming down. Just trying to get a sense for the pace and magnitude and the overall kind of earning asset level. Hey, Matt, this is Ron.

Speaker Change: Great. And then on your brokered CDs and borrowings, they were both relatively flat in the quarter.

Speaker Change: to just speak to.

Speaker Change: You know, whether or not those might start coming down and kind of just trying to get a sense for the pace and magnitude and the overall kind of earning asset level.

Ronald L. Farnsworth: Good question. You know, looking back at the last couple quarters, we've taken down the level of spring cash at the Fed now to this, you know, right around 1.5 billion. And that's really been the clutch as to what we do with the wholesale funds based on other loan and deposit flows. So if we see, you know, net seasonal growth and deposits in the second half of the year over and above loans, you'll see those wholesale balances drop, but the offset is always going to be targeting right around 1.5 billion on spring cash at the Fed, and of those wholesale funds, be it be broker deposits or the homobank advances, you So we've got plenty of opportunity to drop that over the course of Okay, great. And then maybe one for Frank on charge-offs. I didn't see FinPAC isolated.

Ron: Hey Matt, this is Ron. Good question. You know, you look back at the last couple quarters, we've taken down the level of in-spring cash with the Fed, now in this, you know, right around $1.5 billion. And that's really been the clutch as to what we do with the wholesale funds based on other loan and deposit flows.

Ron: So, if we see, you know, net seasonal growth in deposits second half of the year over and above loans, then you'll see those wholesale balances drop, but the offset's always going to be targeting right around 1.5 bill on interest rate cash at the Fed.

Ron: and of those wholesale funds, be it broker deposits or the...

Ron: Homo bank advances, you know, they're structured anywhere from two to call it nine, 10 months out. So we've got plenty of opportunity to drop that over the course of the year.

Frank Namdar: I know you gave the bank charge-offs of six basis points, and I haven't done the math to back into FinPAC, but can you just speak to how the FinPAC net charge-offs trended in 2Q? And I think there's an expectation for more relief in the second half, but just wanted to double-check. Yeah, FinPAC came in at about 26 percent of the total charge-offs, and they're right on track with our expectations. You know, we're definitely seeing improvement through all of the delinquency bans, notably, 31 to 180 day delinquencies are down over 12% from last quarter, and non-accrual balances, as a percent of the portfolio, are down about 23%.

Speaker Change: Okay, great. And then...

Speaker Change: Maybe one for Frank on charge-offs. I didn't see FinPAC isolated. I know you gave the bank charge-offs of six basis points.

Speaker Change: And I haven't done the math to back into FinPAC, but can you just speak to how the FinPAC net charge-off trended in 2Q? And I think there's an expectation for more relief in the second half, but just want to double-check there.

Ronald L. Farnsworth: Yeah, no. Finpack came in at about 26 of the total charge off, and they're right on track to our expectations. You know, we're definitely seeing improvements through all of the DuLinkancy Bands, you know, notably 31 to 180 day DuLinkancy's are down over 12% from last quarter. You know, non-accrual balances as a percent of the portfolio are down about 23%, and those turn into future charge off.

Speaker Change: Yeah, FinPAC came in at about 26 of the total charge-offs, and they're right on track.

Speaker Change: to our expectations. We're definitely seeing improvement through all of the delinquency bans. Notably, 31 to 180-day delinquencies are down over 12% from last quarter.

Frank Namdar: And those turn into future charge-offs. And so, you know, throughout the rest of the year, I think we're going to see more significant improvement than we've seen over the course of the last. Great, thanks again. Thank you.

Speaker Change: Non-accrual balances.

Speaker Change: As a percent of the portfolio are down about 23% and those turn into future charge-offs and so You know throughout the rest of the year. I think we're going to see more

Ronald Farnsworth: And so, you know, throughout the rest of the year, I think we're going to see more significant improvement than we've seen over the course of the last two quarters. So things are progressing, you know, as planned.

Speaker Change: significant improvement than we've seen over the course of the last two quarters. So things are progressing, you know, as planned.

David Feaster: Great. Thanks, I guess.

David Feaster: Yep. Thank you.

Speaker Change: Great. Thanks again. Yep.

Operator: One moment for our next question, and our next question will be coming from David Feaster of Raymond James. Your line is open. Hey, good afternoon, everybody.

David Feaster: One moment for our next question. And our next question will be coming from David Feaster of Raymond Jane; your line is open. Hey, good afternoon, everybody. You know, it's great to see the significant progress that the team you guys have made on the cost savings from that deep dive and in extended expectations, but you talked about reinvesting some of those savings.

Speaker Change: Thank you.

David Pipkin Feaster: David, um, you know, it's great to see the significant progress that the team you guys have made on the cost savings from that deep dive and exceeded expectations. But you talked about reinvesting some of those savings. Could you maybe talk about what you're reinvesting in, the roadmap and timeline for some of those initiatives? Yeah, I'll, I'll start, and then I'm sure that Chris and Tori might want to want to add in and clean up the mess I left on the table here with it.

Speaker Change: One moment for our next question.

Speaker Change: And our next question will be coming from David Feaster of Raymond Jane. Your line is open.

Clint E. Stein: But, you know, in my prepared statement, I talked about the reinvestment that's already occurred. And we've spoken over the last couple of years about, you know, where we've expanded into new geographies that that's, that's, we tracked that. And we didn't, you know, that's what's coming off that original 188 million that we talked about a year ago to get to that net number of 143. So we still have some things to do. We opened our first branch in the Phoenix metro area last month. We have a second one opening in Scottsdale here in a couple weeks.

Speaker Change: All right, good afternoon, everybody.

David Pipkin Feaster: David. David.

David Pipkin Feaster: You know, it's great to see the significant progress that the team, you guys have made on the cost savings from that deep dive and exceeded expectations, but you talked about reinvesting some of those savings. Could you maybe talk about what you're reinvesting in, in the roadmap and timeline for some of those initiatives?

Ronald Farnsworth: Can you maybe talk about what you're reinvesting in in the road map and timeline for some of those initiatives. Yeah, I'll start, and then I'm sure that Chris and Tory might want to add in and clean up the mess I leave on the table here with it. But, you know, in my prepared comments, I talked about the reinvestment that's already occurred in, and we've spoken over the last couple years about, you know, where we've expanded into new geographies. That's, that's we tracked that, and we didn't, you know, that's, that's what's coming off that original 188 million that that we talked about a year ago to get to that net number of the 143.

Clint E. Stein: And we have some other locations where we're putting in, you know, so we can have full service banking capabilities within those new geographies. And Tori was reviewing the new market activity from a commercial perspective with me yesterday. And it's pretty impressive what the teams have accomplished in all of those markets. And so, you know, our commitment to them is that if they perform and produce, we will continue to invest in helping them grow those markets. And so that's what some of that looks like.

David Pipkin Feaster: Yeah, I'll start and then I'm sure that Chris and Tori might want to want to add in and clean up the mess I leave on the table here with it. But, you know, in my prepared...

Chris: comments I talked about the reinvestment that's already occurred and and we've spoken over the last couple years about you know where we've expanded into new geographies that that's that's we tracked that and and we didn't

Speaker Change: You know, that's that's what's coming off that original $188 million that that we talked about a year ago to get to that net number of the $143 million. So we still have some things we opened our first

Ronald Farnsworth: So we still have some things. We opened our first branch in the Phoenix metro area last month. We have a second one opening, and Scott is still here in a couple of weeks. And we have some other locations where we're putting in, you know, so we can have full-service banking capabilities within those new geographies and.

Speaker Change: branch in the Phoenix metro area last month. We have a second one opening in Scottsdale here in a couple of weeks and and we have some other locations where

Speaker Change: We're putting in, you know, so we can have full-service banking capabilities within those new geographies. And Tori was reviewing the new market activity from a commercial perspective with me yesterday.

Ronald Farnsworth: Tory was reviewing the new markets activity from a commercial perspective with me yesterday, and it's pretty impressive what that the teams have accomplished in all of those markets. And so, you know, our commitment to them is that if they perform and produce, that we will continue to invest in helping them grow those markets. And so, that's what some of that looks like; it's. And the other thing is, is we continue to attract really, really good talent from other organizations, and so we're seeing opportunities to fill in and in certain geographies and strengthen the team with that some technology.

Speaker Change: It's pretty impressive what the teams have accomplished in all of those markets. And so, you know, our commitment to them is that if they perform and produce, that we will continue to invest in helping them grow those markets. And so that's what some of that looks like.

Clint E. Stein: The other thing is that we continue to attract really, really good talent from other organizations. And so we're seeing opportunities to fill in in certain geographies and strengthen the team. We've got some technology, platforms that are in flight that are pretty exciting for our teams. I'm not going to mention them on the call because I don't want to give our playbook away to any of our competitors that might listen in. So it's people.

Speaker Change: The other thing is, is we continue to attract really, really good talent from other organizations. And so we're seeing opportunities to fill in, uh, uh, in, in certain geographies, um, and strengthen the team. Um, we've got some technology, um,

Speaker Change: platforms that are that are in flight that are pretty exciting for our teams. I'm not going to mention on the call because I don't want to give our playbook away to any any of our competitors that might listen in. But so it's it's it's people.

Clint E. Stein: Facilities, Technology, it's all the things that we think will help us grow revenue over the long haul. I think it's well said. One thing you mentioned that we're really proud of is we have four new commercial offices that we partnered with retail banking. We've got branches that are good in flight, and they're in some great markets for us. We have a wine team in the Bay Area and Napa Valley and in Arizona, Colorado, and Utah.

Speaker Change: It's facilities, it's technology, it's all the things that we think will help us grow revenue over the long haul.

Tori: Tory, Chris, I think it's well said. I mean, we I think Clint really what one thing you mentioned, I think we're really proud of is we had, you know, four new commercial offices that we

Speaker Change: And so we've partnered with retail banking. We got branches that are good in flight. And they're in some great markets for us, or wine team in the Bay Area and Napa Valley and Arizona, Colorado and Utah, and all are well ahead of budget.

Clint E. Stein: All are well ahead of our budget and substantially in the black profitable, and really great to see. It really gives us a ton of confidence that we can continue to hire and attract really talented folks and put them in marketing, and give them the tools to be successful. We've got some products and some technology that, as you mentioned, I think it's just going to continue to advance the company and our ability to serve our customers. I think we're all really excited about the future of this organization. David, Chris, what I'll add is that I just want to kind of emphasize full service.

Speaker Change: and substantially in the black profitable and really great to see.

Speaker Change: It really gives us a ton of confidence that we can continue to hire and attract really talented folks and put them in marketing, give them the tools to be successful. We've got some products and some technology that, as you mentioned, I think is just going to continue to advance the company and our ability to serve our customers.

Speaker Change: and I think we're all really excited about certainly the future of this organization.

Clint E. Stein: While we have very successful commercial teams in those markets that are now, you know, give us a flag plant, plant the branch there, it'll help us grow. We're not looking to grow in retail and commercial, it'll be across wealth, it'll be mortgage offerings, it's, it's going to be full service, like we do in our other markets, it'll just look more branch light than it would look and say, Washington and Oregon, you guys you also sold a book of transactional resi mortgages in the quarter. Are there any other transactional books that you may be interested in And, and, and, you know, we've spoken about that.

Speaker Change: David, Mr. Chris, what I'll add is...

David Pipkin Feaster: It's just I want to kind of emphasize full service.

David Pipkin Feaster: While we have very successful commercial teams in those markets.

David Pipkin Feaster: that are now, you know, give us a flag, plant the branch in there. It'll help us grow. We're not just looking to grow in retail and commercial. It'll be across wealth. It'll be mortgage offerings. It's going to be full service like we do in our other markets. It'll just look more branch light.

David Pipkin Feaster: then it would look and say Washington and Oregon.

David Pipkin Feaster: Thank you.

Speaker Change: Um, you guys, you also sold a book of transactional resi mortgages in the quarter. Are there any other transactional books that you may be interested in selling to maybe help optimize the balance sheet further just, you know, as the secondary market's pretty open right now?

Clint E. Stein: We've talked about it, I think, during some of the conversations that we had in the first quarter about optimizing the balance sheet and where there are some transactional real estate portfolios, you know, we need the market, we need rates to come down to certain levels before we could execute on that. In the meantime, you know, we're trying to convert them from transactional to full relationships. And to the extent that there's any success with that, then we would just lower the amount that we expect. But, but offhand, in terms of anything immediate, I don't really see that there's anything we've kind of cleaned up.

Speaker Change: You know, the short answer is yes.

Speaker Change: You know, we've spoken about that, we've talked about it, I think, during some of the conversations that we had in the first quarter about optimizing the balance sheet and where there's some transactional real estate.

Speaker Change: portfolios.

Speaker Change: You know, we need, we need the market, we need...

Speaker Change: rates to come down to certain levels before we could execute on that.

Speaker Change: In the meantime, you know, we're trying to convert them from transactional into full relationships and to the extent there's any success with that, then we would just lower the amount that we expect.

Speaker Change: But offhand, in terms of anything...

Clint E. Stein: A lot of that stuff over the past year, you know, shortly after the merger last year, last June, July, I think it was a little over half a billion in transactional loans. We sold out of the Mark to Columbia portfolio. And then just as opportunities presented themselves with some of these resi portfolios, we've taken those down as well. Okay, and then maybe just thinking about the loan growth side. Obviously, this quarter is showing some declines in non-occupied CRE growth and construction.

Speaker Change: I don't really see that there's anything, we've kind of cleaned up a lot of that stuff over the past year, you know, shortly after the merger last year, last June , July , I think it was, what, Ron, a little over half a billion.

Ron: Transactional loans we sold out of the Marked Columbia portfolio, and then just as opportunities presented itself with some of these resi portfolios, we've taken those down as well.

Ron: That's correct.

Speaker Change: Okay, and then maybe just thinking about the loan growth side, you know, obviously this quarter is, you know, some declines in non-R-occupied CRE, growth in construction.

Torran B. Nixon: You know, you've made a bunch of new hires, like you talked about where we're investing in that side of the business. I'm curious, how do you think about the loan pipeline? What's the pulse of your markets? How's demand looking? And where are you seeing growth opportunities? This story, you know, I that's a lot of pieces in there.

Speaker Change: You've made a bunch of new hires like you talked about, where we're investing in that side of the business. I'm curious, how do you think about the loan pipeline? What's the pulse of your markets? How's demand looking and where are you seeing growth opportunities?

Torran B. Nixon: I'll start with this. The pipeline is a pretty is very consistent to what it was last quarter, and I think if you can recall last quarter I talked a little bit about it you know Q1 pipeline at the end was pretty consistent with Q4 except in terms of total dollars just that there was a shift there is a reduction in the CRE pipeline and a likewise like amount increase in the CNI pipeline and that has held steady so we continue to see a slight decrease in the CRE pipeline and in a kind of a matching number a dollar amount increase in CNI so feel good about, [inaudible] We recently did a survey with commercial customers throughout the West.

Speaker Change: This is Tory. You know, there's a lot of pieces in there. I'll start with this. The pipeline is very consistent to what it was last quarter.

Speaker Change: and I think if you can recall last quarter I talked a little bit about Q1 pipeline at the end was pretty consistent with Q4 except in terms of total dollars.

Speaker Change: Just that there was a shift there is a reduction in the CRE pipeline and a likewise like amount increase in the

Speaker Change: C&I pipeline and that has held steady so we continue to see a slight decrease in the CRE pipeline and and I have a matching number a dollar amount increase in C&I so feel good about this

Speaker Change: continued progress of FOCUS.

Speaker Change: on the C&I side and C&I front. But demand is...

Torran B. Nixon: I'm kind of a very, significant contrast between middle market customers and their optimism versus small business or smaller commercial customers. And so there's some opportunity in the middle market side, but then less on the lower middle market and small business in terms of loan demand. Geographically, the West is still strong.

Speaker Change: I'm kind of very

Speaker Change: Significant contrast between middle market customers and their optimism versus small business or smaller commercial customers.

Speaker Change: So there's some opportunity in the middle market side, but then less on the lower middle market in small business in terms of loan demand. Geographically, the West is still strong. I mean, companies are performing well. They're still just kind of electing to use...

Torran B. Nixon: I mean, companies are performing well. They're still just kind of electing to use cash for some investment needs rather than borrow money. And but we're I feel good about it. Teams are deployed.

Torran B. Nixon: You know, we're really focused on full relationship banking. If we're going to make loans to people, we want their deposits, and we want the opportunity to provide services to create fee income for the bank. So I feel good.

Speaker Change: Cash.

Speaker Change: for some investment needs rather than borrow money.

Speaker Change: and um but we're we're I mean I feel good about it we teams are deployed you know we're really focused on full relationship banking um you know this is

Speaker Change: If we're going to make loans to people, we want their deposits and we want the opportunity to provide services to create fee income for the bank. So I feel good. I really feel we're probably a low single digit.

Torran B. Nixon: I feel I really feel that we're probably a low single-digit loan growth number through the balance of the year. But I think we're poised when the opportunity exists for us in terms of more demand, we'll be ready to go and get out there and make sure that we're providing great service for our customers and bringing in new names to the bank. That's helpful. Within C&I, are you seeing more opportunities with deepening relationships at existing customers, or are these new relationships that you're bringing to the bank? I would say both.

Speaker Change: Loan growth number through the balance of the year, but I, you know, I think we're poised to, when the opportunity exists for us in terms of more demand, we'll be ready to go.

Speaker Change: and get out there and make sure that we're providing great service for our customers and bringing in new names to the bank.

Speaker Change: That's helpful. Within CNI, are you seeing more opportunity with deepening relationships at existing customers or are these new relationships that you're bringing to the bank?

Torran B. Nixon: There's a major emphasis on expanding relationships that we already have. So new products, new services, a lot of fee income business. I talked about the fee income pipeline. I mean, if I look at treasury management, commercial card, merchant services, international banking, those four solutions right there are big for us.

Speaker Change: I would say both. There's a major emphasis on...

Speaker Change: expanding relationships that we already have. So new products, new services.

Speaker Change: A lot of fee income business. I talked about the fee income pipeline. I mean, if I look at treasury management, commercial card, merchant services, international banking, I mean, those four solutions right there are big for us. We're seeing a lot of activity. We've had a lot of growth.

Torran B. Nixon: We're seeing a lot of activity. We've had a lot of growth in that part of the fee income pipeline and in just production itself, so I feel really good there.

Speaker Change: in that part of the fee income pipeline, and in just production itself. So feel really good there.

Torran B. Nixon: New names are a tougher road, but we've had some really good success in some of our de novo markets, but we're also having success everywhere. And the whole idea here is that we're going to focus on our customers. We're going to serve them really well, provide products and services for the needs that they have, and then there's an outbound effort to make sure we can bring in new names. Terrific. That's extremely helpful.

Speaker Change: New names are a tougher road, but we've had some really good success in some of our de novo markets, but we're also having success everywhere. And the whole idea here is that we're going to focus on our customers, we're going to serve them really well.

Speaker Change: provide products and services for the needs that they have and then there's an outbound effort to make sure we can bring in new names to the company.

Speaker Change: Terrific. Extremely helpful. Thank you all.

Torran B. Nixon: Thank you all. Thank you. One moment for the next question, and our next question will be coming from Brandon King of Truist. Your line is open.

Speaker Change: Yep

Speaker Change: Thank you. One moment for the next question.

Speaker Change: And our next question will be coming from Brandon King of Truist.

Brandon Thomas King: Hey, good afternoon. Good afternoon. Could you just elaborate further on, you know, the amount of the loan portfolio that you reviewed? I know you mentioned zero delinquencies, but any other surprises, any other takeaways? That would be: No, no, no surprises, Brandon.

Frank Namdar: I mean, I think everything is, is, is moving. [inaudible] higher charge-offs than we typically would see within the portfolio, though most of those carry some sort of a government guarantee, so that's, that's a form of mitigant for us, but the biggest kind of success that that I would point to, at least for me, is just our commercial real estate portfolio is just and just performing absolutely fantastic.

Speaker Change: Your line is open.

Brandon Thomas King: Hey, good afternoon.

Brandon Thomas King: Good afternoon.

Brandon Thomas King: So in regards to credit quality and your targeted reviews, could you just elaborate further on, you know, amount of the loan portfolio that you reviewed, I know you mentioned zero delinquencies, but any other surprises, any other takeaways?

Speaker Change: That would be great to hear.

Speaker Change: No, no, no surprises, Brandon. I mean, I think everything is, is, is moving.

Speaker Change: How we kind of expected, you know, the higher rate environment.

Speaker Change: The high duration for longer, you see the impact and some of the smaller customers, HELOC delinquencies are ticking up and, you know, our SBA loan portfolio continues to experience higher delinquencies and higher

Speaker Change: Higher charge-offs than we typically would see within the portfolio, though most of those carry some sort of a government guarantee. So that's a form of mitigant for us.

Speaker Change: The biggest kind of success that that I that I would point to.

Speaker Change: At least for me, it's just our commercial real estate portfolio, it's just...

Frank Namdar: The teams are laser-focused, I would say, first on portfolio management and staying ahead of any potential repricing and maturities, and second is kind of going out there and looking for additional business. And so as we see these repricing opportunities on the horizon, they're already identified. They're not surprised by them.

Speaker Change: and just performing absolutely fantastic.

Speaker Change: The teams are...

Speaker Change: are laser focused, I would say first on on portfolio management and staying ahead of any potential repricing and maturities. And second is is kind of going out there and looking for additional business. And so

Speaker Change: And so as we see these repricing, you know, opportunities on the horizon, they're already identified. They're not surprised by them.

Frank Namdar: If it looks tight, we're the first ones out talking to them, and we address it ahead of time, as opposed to being reactive. We are proactive as opposed to being reactive. Okay, and in the reviews, did you include any reappraisals or updated LTVs? Or is it mainly just?

Speaker Change: If it looks tight, we're the first ones out talking to them, and we address it ahead of time as opposed to being proactive. We are proactive as opposed to being reactive.

Speaker Change: Excuse me.

Speaker Change: Okay, and in the reviews, did you include any reappraisals or updated LTVs or is it mainly just kind of...

Frank Namdar: Looking at what the value was, yeah, we would not reappraise unless there's an event of maturity or a downgrade into more of a classification type status. But what we do is we look at current rent rolls and we kind of extrapolate from that a form of evaluation, and we update the value internally, if you will, for that evaluation. So we feel good about the position of the portfolio and the numbers that we throw out there in the investor presentation. They're as current as we can make them and as accurate as we can make them based upon the information that we have.

Speaker Change: looking at what the value was.

Speaker Change: Yeah, we, we would not reappraise unless there's a...

Speaker Change: an event of maturity or a downgrade into more of a classification type status, but what we do do is we look at current rent rolls and we kind of extrapolate from that.

Speaker Change: a form of evaluation, and we update the value internally, if you will.

Speaker Change: for that evaluation. So we feel good about the position of the portfolio and the numbers that we throw out there in the investor presentation. They're as current as we can make them.

Speaker Change: and as accurate as we can make them based upon the information that we have. You know, we have seen some seen some decreases obviously in value, but we've always employed a leverage averse kind of posture.

Frank Namdar: We have seen some decreases, obviously, in value, but we've always employed a leverage-averse kind of posture in underwriting. And so, we feel really good about the portfolio and the loan-to-value ratio in the event that we have to restructure some of these things as we move forward, which we don't see presently. Okay, very, very helpful.

Speaker Change: to underwriting. And so, so we, we feel really good about the portfolio and, and the loan to values in the event that we have to restructure some of these things as we move forward, which we don't see presently. So.

Torran B. Nixon: And lastly, for me, just on fee income, particularly core, there was some good strength there. Could you just speak to the momentum in those line items and kind of what your outlook is over the back end? Sure. Hey, Brandon, this is Tory. So those four big categories that I talk about, treasure management, commercial card, merchant services, and international banking, collectively, they're up about 7% quarter over quarter. And then, year over year, they're up about 14%. The two biggest movers are, in terms of percentage, commercial cards and international banking.

Speaker Change: Okay. Very, very helpful. And lastly, for me, just...

Speaker Change: On fee income, particularly core fee income, there was some some good strength there. Could you just speak to the momentum in those line items and kind of what's your outlook over the back half of the year and beyond?

Speaker Change: Sure. Hey, Brandon, it's Tori. So those four big categories that I talk about, treasury management, commercial card, merchant services, and international banking.

Tori: Collectively, they're up about 7% quarter over quarter. And then year over year, they're up about 14%. The two biggest movers are

Torran B. Nixon: And I would categorize it this way, the fee income pipeline continues to grow every single day. I think I mentioned on Quest Smart Leads, this ability to kind of look at predictive analytics and help our bankers see a product or service that can provide a solution for a customer and gives them kind of a warm lead. We've had a lot of success, and leveraging that and going out to our customer base and kind of walking them through what certain products and services will do to support their business and help them become more efficient, more cost-effective. And the pipeline, I mean, it's. We're very well received by the bankers. It's even better than that.

Tori: In terms of percentage or commercial card and international banking, and I would categorize it this way, the fee income pipeline

Speaker Change: continues to grow every single day. I think I mentioned on Quest Smart Leads this ability to kind of look at predictive analytics and help our bankers see a product or service that can provide a solution for a customer and gives them kind of a warm lead. We've had a lot of success.

Speaker Change: and leveraging that and going out to our customer base and kind of walking them through what certain products and services will do to support their business and to help them become more efficient, more cost effective. And the pipeline, I mean, it's, it's

Torran B. Nixon: It's really well-received by the customer base, and they see it as a real positive and really, very helpful for them. So it's a pretty easy sale. And so I've seen a lot of growth there. The pipeline is strong. I'm very optimistic about that. I mean, there's no reason why this can't just continue with these kind of growth numbers because the activity just keeps picking up. And, you know, eventually it just kind of hits the bottom line, and it's just reoccurring every time. Hey, Brandon, this is Chris.

Speaker Change: We're very well received by the bankers.

Speaker Change: It's even better than that. It's really well received by the customer base. And they see it as a real positive and a real very helpful for them. So it's a pretty easy sale. And so I've seen a lot of a lot of growth there. The pipeline is strong, very optimistic about that. I mean, there's no reason why this can't just continue.

Speaker Change: with these kind of growth numbers because the activity just keeps picking up and you know eventually just kind of it hits to the bottom line and it's just reoccurring every single day.

Christopher M. Merrywell: I'll add from the kind of other side of the business that, We talked about the campaign in the spring. We're seeing an increase in merchant referrals that are now starting to book, and so merchant card revenues are up, and that's a real positive sign. And then the other one would be in our wealth management division. Our trust company is doing extremely well.

Speaker Change: Hey Brandon, this is Chris. I'll add from the kind of the other side of the business that

Brandon Thomas King: We talked about the campaign in the spring. We're seeing increase in merchant referrals that are now starting to book and so merchant card revenues up.

Speaker Change: And that's a real positive sign. And then the other one would be, it's in our wealth management division. Our trust company is doing extremely well. We've built a lot of connections with our

Christopher M. Merrywell: We've built a lot of connections with our new bankers and others in there, and we're getting a lot more referrals internally into that space. So it's good quality growth there. Assets under management are up considerably this year from new business being driven in. And then in our wealth advisor group, we talked back in the fourth quarter that we would pivot our platform over to Raymond James, and that transition went through into the second quarter.

Speaker Change: The new bankers and others in there, and we're getting a lot more referrals internally into that space.

Speaker Change: So, it's good quality growth there. Assets under management are up considerably this year from new business being driven in. And then on our wealth advisor group, we talked back in the fourth quarter that we pivoted our platform over to Raymond James.

Christopher M. Merrywell: It's now officially behind us, and those groups are now starting to see what we planned for was with a platform that had better technology and end user experience. We expected to see revenue increase in that space, and that's exactly what we're starting to see and would expect that to continue throughout this year. Thanks. I really appreciate the detailed response.

Speaker Change: And that transition went through into the second quarter. It's now officially, I would declare it behind us.

Speaker Change: and those groups are now starting to see the what we had we planned for was with a platform that had better technology and an end-user experience. We expected to see revenue increasing in that space and that's exactly what we're starting to see and would expect that to continue throughout this year.

Speaker Change: Thanks. Really appreciate the detailed response.

Brandon Thomas King: Thank you. As a reminder, if you would like to ask a question, please press star 1-1 on your telephone. One moment for the next question. And our next question is going to come from Jared Shaw, of Barclays. Your line is open. Hi, good afternoon.

Speaker Change: Thank you.

Speaker Change: As a reminder, if you would like to ask a question, please press star 11 on your telephone.

Speaker Change: One moment for the next question. And our next question is going to come from Jared Shaw.

Speaker Change: of Barclays. Your line is open.

Jared David Wesley Shaw: Could you go back to the growth in residential non-performers, I think you referenced that coming off of COVID protections, are those just loans that were delinquent that are now switching to non-performing, and did that require a provision associated with that, or was that separate? Hey, Jared, this is Frank.

Jared David Wesley Shaw: Hi, good afternoon.

Jared David Wesley Shaw: Could you go back to the growth in residential non-performers, I think you referenced that coming off of COVID protections, is that just loans that were delinquent that are now switching to non-performing? And did that...

Speaker Change: require a provision associated with that or is that separate?

Frank Namdar: Yes, that's exactly what they were. There were loans that started to struggle sometime during COVID, and we, we employed modifications, and deferrals to them. Our accounting group subsequently removed the flag for those loans, and that's what you see in the 90 plus category today. Jared, this is Ron. There's no meaningful provision for that.

Speaker Change: Hey Jared, this is Frank. Yes, that's exactly what they were. They were

Speaker Change: There were loans that started to struggle sometime during COVID, and we...

Speaker Change: We employed modifications, deferrals to them. Our accounting group subsequently removed the flag for those loans.

Speaker Change: And that's what you see in the 90 plus categories today.

Ronald L. Farnsworth: A good chunk of that also is Governor. Okay, okay. And then. Looking at mortgage banking, any sort of update on what to expect for that going forward? I guess you know maybe second quarter you got a little benefit seasonally, but I'll see the outlook there. Yeah, Jared, this is Chris.

Ron: And Jared, this is Ron. There's no meaningful provision on that. A good chunk of that also is government guaranteed.

Jared: Okay. Okay. Um, and then.

Jared: Looking at mortgage banking any sort of update on on what to expect for that going going forward I guess you know maybe second quarter you got a little benefit seasonally but I'll see the outlook there.

Christopher M. Merrywell: I think it's really settled into a really nice spot. Since the transition, it's been very consistent month in, month out. We're seeing that most of the volume, obviously, is being driven by purchases at around 69, 70%. There's still refi activity in there that comes in around 15, 16% each and every month, and there's a little bit of construction lines to perm that make up the remainder of it. Most of it, as we discussed the strategy and where we're going, is more of a bank and mortgage company within the bank, or, excuse me, an apartment of the bank is the mortgage company. 80% of the production is saleable product, with the remaining part going into the portfolio. So, yeah, no, it's settled in. I think the teams have done a really nice job.

Jared: Jared, this is Chris. I think it's really settled into a really nice spot since the transition of it. It's very consistent month in, month out. We're seeing

Speaker Change: Most of the volume, obviously, is being driven by purchases at around 69-70%. There's still refi activity in there that comes in around 15-16% each and every month, and there's a little bit of construction lines to perm that make up the remainder of it.

Speaker Change: Most of it, as we had discussed about the strategy and where we were going, is more of a bank...

Speaker Change: and Mortgage Company within the bank or excuse me a bank of apartment of the bank is the mortgage company

Speaker Change: 80% of the production is saleable product.

Speaker Change: with the remaining part going into the portfolio. So, yeah, no, it's settled down. I think the teams have done a really nice job. We're seeing good internal referral activities. Couldn't be happier with it.

Christopher M. Merrywell: We're seeing good internal referral activities, and we couldn't be happier with that. Okay, and then just finally for me, you know, the $7.7 million incentive comp reversal that you referenced. I guess, what were the triggers that caused that to be reversed? Yeah, it's part of the analysis that we did in terms of overall, you know, as part of the expense initiative and looking at some of our compensation programs and, you know, being able to correlate those to driving shareholder value versus utilizing those as part of reinvesting and growing revenue streams in the future. So, so, you know, we had an accrual out there. When we terminated or altered the programs, then we just didn't, didn't have a need for the accrual.

Speaker Change: Okay, and then just finally for me, you know, the $7.7 million incentive comp reversal that you referenced, I guess, what were the triggers that caused that to be reversed?

Speaker Change: Yeah, it's part of, um...

Speaker Change: It's part of the analysis that we did in terms of overall, you know, as part of the expense initiative and looking at some of our compensation programs and, you know, being able to correlate those to driving shareholder value versus

Speaker Change: Utilizing those as part of reinvesting and growing

Speaker Change: revenue streams in the future so so you know we had we had an accrual out there when we terminated the or altered the programs then we just didn't didn't have a need for the accrual so we had to reverse it

Ronald L. Farnsworth: So we had to reverse it. Okay, so should we think that a core run rate on sellers and benefits this quarter would be closer to that 152, 153 level? Hey Jared, this is Ron.

Speaker Change: Okay, so should we should we think that a core run rate on salaries and benefits this quarter would be closer to that 152, 153 level?

Ronald L. Farnsworth: With that $7.7 million, that'd be correct, but more importantly, $270.2 million would be a normalized level of expense for Q2, excluding that, because that won't be recurring. Okay, 270.2 for the overall expenses. Got it. Okay, thank you. For the second quarter on a normalized basis, right?

Speaker Change: Hey Jared, this is Ron. With that $7.7 million, that'd be correct, but more importantly, $270.2 million would be a normalized level of expense for Q2, excluding that, because that won't be recurring.

Speaker Change: Okay, 270.2 for the overall expenses. Got it. Okay. Thank you. For the second quarter on a normalized basis, right? Eventually, we're going to get into our... That's just right on the bottom end of our 965, 985 annualized range that we expect for Q4, less CDI amortization.

Ronald L. Farnsworth: Eventually, we're going to get into our, that's just right on the bottom end of our 965, 985 annualized range that we expect for Q4 less CDI amortization, the driver there being the reinvestments Clint mentioned earlier. Got it.

Speaker Change: The driver there being the reinvestments Clint mentioned earlier.

Ronald L. Farnsworth: Thank you. Thank you. One moment for the next question, and our next question will be coming from Jeff Rulis of D.A.

Speaker Change: Got it, thank you.

Speaker Change: Thank you. One moment for the next question.

Jeffrey Allen Rulis: Davidson, your line is open. Thanks. Good afternoon.

Speaker Change: And our next question will be coming from Jeff.

Ronald L. Farnsworth: I wanted to talk about another question on the mortgage side. I thought at one point there was an effort to maybe look at minimizing the volatility within that line item on the fee income side. And I can't remember if that was a legacy UMQA thing or maybe shrinking the MSR portfolio. Is there any thought or effort to minimize that ahead? Or was that something that was in the past? Sorry, that's, Hey, Jeff, is it Ron?

Speaker Change: Rulis of D.A. Davidson, your line is open.

Jeffrey Allen Rulis: Thanks. Good afternoon. I wanted to talk about another question on the mortgage side. I thought at one point there was an effort to maybe look at minimizing the volatility within that line item in the fee income side, and I can't remember if that was a

Jeffrey Allen Rulis: legacy UMQA thing or maybe shrinking the MSR portfolio.

Speaker Change #100: Thank you.

Ronald L. Farnsworth: Good question. And yeah, very much so. That was, I'm going historically, and we have reduced volatility within mortgage-related fair value changes, for example. Prior to part of the run-up and rates, we didn't have a hedge on the MSR. So we benefited from that on the way up, but we now have a hedge on the MSR. So that'll help protect no matter which way rates go in the future on that front. So all with an eye towards just reducing volatility in many ways, in many cases, fair value volatility just given which way rates go. No plans at this point to significantly reduce the level of MSR.

Speaker Change #100: Hey, Jeff, this is Ron. Good question. And yeah, very much that was, I'm going historically and we have reduced volatility.

Speaker Change #101: within mortgage-related fair value changes. For example, prior to the run-up in rates, we didn't have a hedge on the MSR, right? So we benefited from that on the way up, but we now got a hedge on the MSR, so that'll.

Speaker Change #101: I'll protect no matter which way rates go in the future on that front. So all with an eye towards just reducing, you know, reducing volatility in many ways. In many cases, it's...

Speaker Change #101: Fair value, volatility, just given which way rates move.

Ronald L. Farnsworth: I think you're going to see a pretty steady state. And again, we've got that hedge for any potential future rate down environment. Yeah, just to add to that, I think beyond just volatility in the mortgage area, really any part of our operation that's volatile. I mean, you know, seasonality is one thing, business cycles are another thing.

Speaker Change #101: No plans at this point to significantly reduce the level of MSR. I think you're going to see a pretty steady state and again we've got that hedge for any potential future rates down environment.

Speaker Change #102: Yeah, just just to add to that. I mean, I think beyond just volatility and in the mortgage area really any any part of our operation that's

Speaker Change #103: It's volatile. I mean, you know, seasonality is one thing.

Clint E. Stein: But if it's truly just something that's volatile and creates noise, you know, we're going to take a hard look at those things. And, you know, anything that has a negative implication on our ability to just be consistent quarter after quarter is going to get a lot of scrutiny. Gotcha. Thanks. And, Clint, you kind of teased this a little bit, taking a look at some of your newer productions in Denver, Phoenix, Salt Lake City. Is there?

Speaker Change #104: Business cycles are another thing, but if it's truly just something that's volatile and creates noise, we're going to take a hard look at those things.

Speaker Change #104: and anything that has a negative implication on our ability to just be consistent quarter after quarter is going to get a lot of scrutiny.

Speaker Change #104: Gotcha, thanks. And Clint, you kind of teased this a little bit taking a look at some of your newer production in the Denver, Phoenix, Salt Lake City, is there?

Clint E. Stein: Have you guys put a dollar figure to that in terms of like year-to-date production that comes from? I just have a vague idea of what those newer locations you've talked about are reaching break even, but wanted to get a sense for, What is the loan production out of those relative to the total company? Yeah, I mean, they've done a tremendous job. And I'd say, you know, they're listening to the call; they'll be disappointed if I don't if I don't clarify that they're beyond breakeven. And I don't know that we've disclosed it anywhere in terms of specific for by by geography.

Speaker Change #107: Have you guys put a dollar figure to that in terms of like year-to-date production that comes from, I just, I have a vague idea of what those newer locations, you've talked about, you know, reaching break-even, but wanted to get a sense for.

Speaker Change #104: What is the loan production out of those relative to the total company?

Speaker Change #105: Yeah, I mean, they've done a tremendous job, and I'd say...

Speaker Change #106: You know, if they're listening to the call, they'll be disappointed if I don't, if I don't clarify that they're beyond breakeven.

Speaker Change #108: and I don't know that we've disclosed anywhere in terms of specific for by by geography you know we that's a slippery slope because then we you know we start thinking about all the other

Clint E. Stein: You know, that's a slippery slope because then we, you know, we start thinking about all the other elements of our footprint, but, So I don't, I don't know that we can give you any additional context unless Tori has something. No, no, I would, no, I would just, I would just say that, uh, I think other than just balances, it's with a few people. So the expense base is pretty low, uh, but they're very, very talented, hardworking folks, and they've been able to bring new names into the company. They've got a lot, they've got strong, um, non-interest bearing and interest bearing deposits.

Tory: So I don't know if we really can give you any additional context as much as Torrey has. No, I would just say that other than just

Torrey: You know, balances.

Speaker Change #110: It's with a few people, so the expense base is pretty low, but they're very, very talented, hard-working folks, and they've been able to bring new names into the company. They've got strong non-interest-bearing and interest-bearing deposits.

Clint E. Stein: We've got good, strong, almost solely C&I loan balances and really good fee income. So they're kind of carrying the flag of the bank in a great way on relationship banking in all of those new markets, and starting from basically nothing, and very proud of the efforts that they've put in, the success that they've had. And they're meaningful numbers, I mean, relative to the rest of the company or whatever, but it's a meaningful number. And to be able to go in and start from a dead stop and have success so quickly and be profitable so quickly is a great thing.

Speaker Change #110: They've got good, strong, almost...

Speaker Change #110: solely CNI loan balances and really good fee income. So they're kind of carrying the flag of the bank in a great way on relationship banking in all of those new markets and starting from basically scratch in

Speaker Change #110: Very, very proud of the efforts that they've put in and the success that they've had. And it's meaningful numbers. I mean, relative to the rest of the company, it's a...

Speaker Change #110: It's a smaller number, but it's a meaningful number and to be able to go in and start from a dead stop and have success so quickly and to be profitable so quickly is a great thing.

Clint E. Stein: Gotcha. Lastly, for Clint, you know, on a, you know, Imagine if you look at open bank M&A, if that's even an option, but your might be prioritized. Team liftouts, or anything from an acquisition standpoint, is that something you're looking at?

Speaker Change #110: Gotcha. Lastly, Clint, you know, on a, you know,

Speaker Change #111: imagine if you if you look at open bank M&A if that's even an option but your might be prioritized team liftouts or anything from a from a acquisition standpoint is that anything you're you're looking at

Clint E. Stein: Yeah, you know, our top priority is, you know, my prepared remarks are that the company that we set out to create when we announced the merger in 2021, we're running it today. So our top priority is to get the most out of this company. And, you know, hopefully, these last two quarters and the efforts that you've seen with the execution of the expense initiative, the momentum that Chris and Tori have talked about on the business side, we're starting to prove that out. So I think we still have some work to do. But, you know, we live it every day.

Clint E. Stein: Yeah, you know, our top priority.

Clint E. Stein: is, you know, my prepared remarks is that the company that we set out to create when we announced the merger in 2021, we're running it today.

Speaker Change #112: So, our top priority is to get the most out of this company and hopefully these last two quarters and the efforts that you've seen with the execution of the expense initiative, the momentum that Chris and Tori have talked about on the business side.

Speaker Change #112: that we're starting to prove that out. So I think we still have some work to do.

Clint E. Stein: So we know the strength of this company and the quality of the people that we have that are out there every day taking care of our customers, so that's our top priority. I, you know, I mentioned earlier that, you know, we're still attracting talent. And whether it's a team without, you know, Tori mentioned the wine team, which is one of the new groups that we started in the past nine months or so.

Speaker Change #112: But, you know, we live it every day, so we know the strength of this company and the quality of the people that we have.

Speaker Change #112: that are out there every day taking care of our customers.

Speaker Change #112: that's that's our top priority I you know I mentioned earlier that you know we're still attracting talent

Speaker Change #112: and brother it's a team without you know Tori mentioned the wine team that is one of the new groups that we started in the past nine months or so

Clint E. Stein: You know, if you think about that, we probably interviewed 50-plus people and looked at 50-plus people from that organization and took like nine. So just because somebody's out there doesn't mean that they're going to meet our criteria, how they go to market, how they drive value. But we do.

Speaker Change #113: You know, if you think about that, I don't know, we probably...

Speaker Change #114: interviewed 50-plus people and looked at 50-plus people from that organization and

Speaker Change #114: You know, took like nine it was so so just because somebody is out there doesn't mean that they're going to meet, meet, meet, you know, our criteria, how they go to market, how they drive value. But we do, we're always looking at, at

Clint E. Stein: We're always looking at people and any opportunity that's there. I would say the lowest priority right now would be open bank M&A. You know, I don't know what's going to happen with the election and that process. And, you know, we're just now getting the scar tissue healed up from the hell that we were put through, you know, in 2022, 2023. So never say never. But I just don't think now is the time for that. We've got other priorities that are more pressing.

Speaker Change #114: Any opportunity that's there.

Speaker Change #114: I would say the lowest priority right now would be Open Bank M&A.

Speaker Change #114: Yup.

Speaker Change #115: I don't know what's going to happen with the election, you know, and that process, and you know, we're just now getting the scar tissue healed up from the hell that we were put through, you know, and

Speaker Change #115: 2022, 2023, so never say never, but I just I don't think now is the time for that. We've got other priorities that are more pressing and I think will drive drive more shareholder value over the long run.

Clint E. Stein: And I think it will drive more shareholder value over the long run. Okay, thank you. Thank you. And please wait one moment for our next question. Our next question will be coming from Chris McGratty of KW. Your line is open. Oh, great. Thanks. Ron, just a quick one on the fourth quarter expense range, the annualized $9.65 to $9.85. Balancing what you did this quarter and the investments, is there any reason for us as analysts to lean on either side of the midpoint? I think at this point, looking into the Q4 midpoint probably makes the most sense.

Ronald L. Farnsworth: Thank you. You bet. Thank you. Thank you. That concludes today's Q&A session. I would like to go ahead and turn the call back over to Jackie for closing remarks. Please do so.

Speaker Change #115: Okay, thank you.

Speaker Change #115: Thank you.

Speaker Change #116: And one moment for our next question.

Speaker Change #117: Our next question will be coming, excuse me.

Speaker Change #118: Our next question will be coming from Chris McGratty of KW. Your line is open.

Christopher Edward McGratty: Oh great, thanks. Ron, just a quick one on the fourth quarter expense range, the annualized $9.65 to $9.85. Balancing what you did this quarter and the investments, is there any reason for us as analysts to lean on either side of the midpoint?

Ron: I think at this point looking into Q4 midpoint probably makes the most sense.

Ron: That's all I have. Thank you.

Ron: Thank you.

Ron: Thank you. That concludes today's Q&A session. I would like to go ahead and turn the call back over to Jackie for closing remarks. Please go ahead.

Jacquelynne Bohlen: Thank you, Lisa. Thank you for joining this afternoon's call. Please contact me if you have any questions and have a good rest of the day. Thank you for joining today's conference call. You may all disconnect.

Jackie: Thank you, Lisa. Thank you for joining this afternoon's call. Please contact me if you have any questions and have a good rest of the day.

Speaker Change #121: Thank you for joining today's conference call. You may all disconnect.