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'll be a question-and-answer session. To ask a question during the session, press Star 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star 1 again. Please note that today's conference is being recorded. I would like to introduce Jacque Bohlen, Investor Relations Director, to begin the conference call. Please go ahead. 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 which are subject to risks and uncertainties and are intended to be covered by the safe harbor provisions of federal securities law. For a list of factors that may cause actual results to differ materially from expectations, please refer to the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures, and I encourage you to review the non-GAAP reconciliations provided in our earnings materials. I will now hand the call over to Columbia's President and CEO, Clint Stein. Thank you, Jacque. 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. We also achieved more expense reductions during the quarter than what 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. This work is the result of identifying opportunities for improvement after observing a year of the combined company's operations. These opportunities resulted in a lower headcount given the elimination of redundant and overlapping positions and have simplified our organizational structure. 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 outlook. 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. 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 net and $188 million gross 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 into the future growth of our company. 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 merger-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. 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. 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. The heavy lifting is behind us, and we're very optimistic for 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. 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. Thank you, Clint. We reported second quarter GAAP EPS of $0.57 and operating EPS of $0.67, 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 release and presentation for details related to our calculation of operating metrics. On the balance sheet, we had limited growth and reduced interest-bearing cash levels to target approximately $1.5 billion. Within deposits, we had more of a traditional seasonal decline in non-interest-bearing demand related to taxes and corporate distributions. 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%-3.60%. Asset rate pricing more than offset a six basis point increase in interest-bearing liability costs. Our cost of interest-bearing deposits was 2.97% for the quarter and 3% for the month of June. The quarter also benefited from higher prepayment speeds, which resulted in higher discount accretion for the securities portfolio. Looking forward, we expect purchase accounting income to align more closely to the first quarter's level than the second quarter's level, as detailed towards the end of the earnings release. 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. Our provision for credit loss 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 discount. Total GAAP expense for the quarter was $279 million, while 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 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. We continue to expect our Q4 operating expense run rate to be in the annualized range of $965 million-$985 million, excluding CDI amortization. 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. I'll close with commentary about our regulatory capital position. Our risk-based capital ratios increased as expected in Q2. We expect build capital above all long-term targets, which will provide us for enhanced future flexibility. With that, I'll now turn the call over to 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. This quarter, we saw 31- to 89-day delinquencies improve 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. Non-accrual loans decreased approximately $6 million, mainly due to reduced balances in the FinPAc portfolio. These overall classified loans remain stable. Our proactive and detailed monitoring of the portfolio, complemented by 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. Overall net charge-offs for the company stood at an annualized rate of 32 basis points for the quarter, of which the bank contributed 6 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 Tory. Thank you, Frank. 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 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. 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. 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 9 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. 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 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. Non-interest-bearing balances were down 2% on both an end-of-period 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. 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. 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 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 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% on the quarter and 14% from a year ago. 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. 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. Hey, 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% 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 now. Lisa, please open the call for Q&A. Thank you. As a reminder, if you would like to ask a question, please press star 11 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 Jon Arfstrom of RBC Capital Markets. Your line is open. Hey, thanks. Good afternoon, everyone. Hi, John. Hey. Looks like a good quarter. 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. 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. It's really going to depend on deposit flows. Do we see that seasonal strength and non-interest bearing in Q3? We'll be on the upper end of that range. If not, we'll be in the middle or on the 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. So probably somewhere in the middle of the range. 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? Yeah. It'd be beneficial, obviously, in interest income. We are liability-sensitive and positioning the balance sheet that way over the last year. So we'll be positioned for it when and if it ever comes. Yeah. Okay. Okay. Good. And then Clint or Tory, obviously, some decent success on the deposit initiatives. Can you talk about what's really worked well and what you're seeing in terms of overall deposit cost pressures? Thank you. Sure, John. This is Tory. I would say I think there's a couple of things that work really well, and we mentioned it in the call, and I think Chris maybe can add in on this. I think our small business group within retail, the branch system, has done just an outstanding job, just kind of having energy deployed outbound. And I think the entire company is doing that. I mean, it's been a year and a half as we kind of work through all the process, product knowledge, infrastructure within the company, and just a ton of energy that's being deployed outbound. And they had some great results 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. So added a ton of accounts and a lot of balances. On the pricing front, I think this has been very 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, 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 cost. And I don't think there's, at this point, any additional outside pressure from many institutions that will bring that back up. Chris, I don't know if you have anything else you want to add to that. Yeah. Thanks, Tori. Hey, John, it's Chris. 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. 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 directionally 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. So yeah. Okay. Thanks, guys. I appreciate it. You're welcome. Thank you. One moment for the next question. Our next question will be coming from Matthew Clark of Piper Sandler. Your line is open. Hey, good afternoon, everyone. Hey, Matt. I guess on deposit costs, for my first question, it looks like you've lowered deposit rates in some of your consumer categories in early July. I guess, can you speak to kind of retention as you've been doing that and plans to do more or not? Yeah, Matt. Yeah, Matt, Chris, thanks for the question. We really lowered them throughout the last few months. July was one piece of it, but really started back in the late February timeframe. Retention has been extremely good. When you look at, I'll point to 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. Commercial's experiencing the same thing. And again, we still have 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 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 where our forward CD pricing is. Tory, I don't know if you want to add anything. No, I think we're all set. Great. And then on your brokered CDs and borrowings, they were both relatively flat in the quarter. Could you just speak to 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? Hey, Matt. This is Ron. Good question. You look back at the last couple of quarters, we've taken down the level of interest-bearing cash with the Fed now in this right around $1.5 billion. And that's really been the calculus as to what we do with the wholesale funds based on other loan and deposit flows. So if we see 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 billion on interest-bearing cash with the Fed. And of those wholesale funds, be it brokered deposits or the Federal Home Loan Bank advances, they're structured anywhere from 2 to, call it, 9-10 months out. So we've got plenty of opportunity to drop that over the course of the year. Okay. Great. And then maybe one for Frank on charge-offs. I didn't see FinPAC isolated. I know you gave the bank charge-offs of 6 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 Q2? And I think there's an expectation for more relief in the second half, but just want to double-check there. Yeah. No, FinPAC came in at about 26 of the total charge-offs, and they're right on track to our expectations. We're definitely seeing improvement through all of the delinquency bands. Notably, 31- to 180-day delinquencies are down over 12% from last quarter. Non-accrual balances as a percent of the portfolio are down about 23%, and those turn into future charge-offs. So 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. Things are progressing as planned. Great. Thanks again. Yep. Thank you. One moment for our next question. Our next question will be coming from David Feaster of Raymond James. Your line is open. Hey, good afternoon, everybody. Hey, David. 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 and the roadmap and timeline for some of those initiatives? Yeah. I'll start, and then I'm sure that Chris and Tori might want to add in and clean up the mess I leave on the table here with it. But in my prepared comments, I talked about the reinvestment that's already occurred. We've spoken over the last couple of years about where we've expanded into new geographies that we tracked that, and we didn't. That's what's coming off that original $188 million 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 branch in the Phoenix metro area last month. We have a second one opening in Scottsdale here in a couple of weeks. And we have some other locations where we're putting in so we can have full-service banking capabilities within those new geographies. Tory 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. So our commitment to them is that if they perform and produce, that we will continue to invest in helping them grow those markets. So that's what some of that looks like. The other thing is we continue to attract really, really good talent from other organizations. 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 it 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, it's facilities, it's technology. It's all the things that we think will help us grow revenue over the long haul. Tory, Chris, anything? I think it's well said. I mean, I think, Clint, really, one thing you mentioned I think we're really proud of is we had four new commercial offices that we partnered with retail banking. We 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 the Napa Valley and Arizona, Colorado, and Utah, and all are well ahead of budget and substantially in the black, profitable, and really great to see. So it really gives us a ton of confidence that we can continue to hire and attract really talented folks and put them in market and give them the tools to be successful. We got some product 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, certainly, the future of this organization. Yeah. David, and this is Chris. What I'll add is just I want to kind of emphasize full service. While we have very successful commercial teams in those markets that are now, "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 than it would look in, say, Washington and Oregon. Got it. You guys 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 as the secondary market's pretty open right now? The short answer is yes. And 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 portfolios. We need the market. We need rates to come down to certain levels before we could execute on that. In the meantime, 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. But offhand, in terms of anything immediate, I don't really see that there's anything. We've kind of cleaned up a lot of that stuff over the past year. Shortly after the merger last year, last June, July, I think it was, what, we're on a little over $500 million of transactional loans that 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. That's correct. Okay. Then maybe just thinking about the loan growth side. Obviously, this quarter, there's some declines in non-occupied CRE growth in construction. 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 is Tory. There's a lot of pieces in there. I'll start with this. The pipeline is very consistent to what it was last quarter. I think if you can recall, last quarter, I talked a little bit about it. Q1 pipeline at the end was pretty consistent with Q4, except in terms of total dollars, just that there was a shift. There was a reduction in the CRE pipeline and a like-amount increase in the C&I pipeline. That has held steady. We continue to see a slight decrease in the CRE pipeline and kind of a matching number, a dollar-amount increase in C&I. So feel good about this continued progress of focus on the C&I side and C&I front. But demand is relatively benign. There's just not a ton of demand for lending opportunity anywhere. There's some pockets of real optimism. We recently did a survey with commercial customers throughout the West and kind of very significant contrast between middle-market customers and their optimism versus small business or smaller commercial customers. So there's some opportunity in the middle-market side, but then less on the lower middle market and small business in terms of the loan demand. Geographically, the West is still strong. I mean, companies are performing well. They're still just kind of electing to use cash for some investment needs rather than borrow money. But I mean, I feel good about it. The teams are deployed. 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. I really feel we're probably a low single-digit loan growth number through the balance of the year. But I think we're poised to, 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 opportunity with deepening relationships at existing customers, or are these new relationships that you're bringing to the bank? I would say both. 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, 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 in that part of the fee income pipeline and in just production itself. So feel really good there. 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 to the company. Terrific. That's extremely helpful. Thank you all. Yep. Thank you. One moment for the next question. Our next question will be coming from Brandon King of Truist. Your line is open. Hey, good afternoon. Good afternoon. In regards to credit quality and your targeted reviews, could you just elaborate further on the amount of the loan portfolio that you reviewed? I know you mentioned zero delinquencies, but any other surprises and any other takeaways? That would be great to hear. No, no surprises, Brandon. I mean, I think everything is moving how we kind of expected. The higher rate environment, the high duration for longer, you see the impact in some of the smaller customers. HELOC delinquencies are ticking up, and our SBA loan portfolio continues to experience higher delinquencies and 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. But the biggest kind of success that I would point to, at least for me, is just our commercial real estate portfolio. It's just performing absolutely fantastic. 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. 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. Excuse me. Okay. And in the reviews, did you include any reappraisals or updated LTVs, or was it mainly just kind of looking at what the value was? Yeah. We would not reappraise unless there is 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 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. We have seen some decreases, obviously, in value, but we've always employed a leverage-averse kind of posture to underwriting. And so we feel really good about the portfolio 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. Okay. Very helpful. Lastly, for me, just on fee income, particularly core fee income, there was 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? Sure. Hey, Brandon. This is Tory. So those four big categories that I talk about, treasury 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, are commercial card and international banking. And I would categorize it this way: the fee income pipeline continues to grow every single day. I think I mentioned Umpqua 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 in 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. The pipeline, I mean, we're very well received by the bankers, and 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. It's a pretty easy sale. We've seen 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 with these kind of growth numbers because the activity just keeps picking up. Eventually, it just kind of hits to the bottom line, and it's just recurring every single day. Yeah. Hey, Brandon. This is Chris. I'll add from kind of the other side of the business that we talked about the campaign in the spring. We're seeing increases in merchant referrals that are now starting to book. And so merchant card revenues up, 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 the 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 pivoted our platform over to Raymond James. And that transition went through into the second quarter. It's now officially, I would declare it behind us. 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 increasing in that space, and that's exactly what we're starting to see and would expect that to continue throughout this year. Thanks. Really appreciate the detailed response. Thank you. As a reminder, if you would like to ask a question, please press star one-one on your telephone. One moment for the next question. Our next question is going to come from Jared Shaw of Barclays. Your line is open. Hi. Good afternoon. Hey, maybe just 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 require a provision associated with that, or was that separate? Hey, Jared. This is Frank. Yes, that's exactly what they were. They were loans that started to struggle sometime during COVID, and we employed modifications, deferrals to them. Our accounting group subsequently removed the flag for those loans. That's what you see in the 90-plus category today. Jared, this is Ron. There's no meaningful provision on that. A good chunk of that also is government guaranteed. Okay. Okay. And then looking at mortgage banking, any sort of update on what to expect for that going forward? I guess maybe second quarter, you got a little benefit seasonally, but how's the outlook there? Yeah. 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 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 had discussed about the strategy and where we were going, is more of a bank and mortgage company within the bank or excuse me, a bank department 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. We're seeing good internal referral activities. Couldn't be happier with it. Okay. And then just finally for me, the $7.7 million incentive comp reversal that you referenced, I guess what were the triggers that cause that to be reversed? Yeah. It's part of the analysis that we did in terms of overall, as part of the expense initiative and looking at some of our compensation programs and being able to correlate those to driving shareholder value versus utilizing those as part of reinvesting and growing revenue streams in the future. So we had an accrual out there when we terminated or altered the programs. Then we just didn't have a need for the accrual, so we had to reverse it. Okay. So should we think that a core run rate on salaries and benefits this quarter would be closer to that $152-$153 level? 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. 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 end, and that's just right on the bottom end of our 965-985 annualized range that we expect for Q4 or less CDI amortization. So the driver there being the reinvestments Clint mentioned earlier. Got it. Thank you. Thank you. One moment for the next question. Our next question will be coming from Jeff Rulis of D.A. Davidson & Co. Your line is open. Thanks. Good afternoon. 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 legacy Umpqua 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. This is Ron. Good question. And yeah, very much that was Umpqua historically. And we have reduced volatility 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 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, it's fair value volatility just given which way rates move. 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 rate-down environment. Yeah. Just to add to that, I mean, I think beyond just volatility in the mortgage area, really any part of our operation that's volatile. I mean, seasonality is one thing. 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. 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. Gotcha. Thanks. And Clint, you kind of teased this a little bit, taking a look at some of your newer production in Denver, Phoenix, Salt Lake City. Have you guys put a dollar figure to that in terms of year-to-date production that comes from? I have a vague idea of what those newer locations you've talked about 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. I'd say if they're listening to the call, they'll be disappointed if I don't clarify that they're beyond break-even and profitable. I don't know that we've disclosed anywhere in terms of specific for by geography. That's a slippery slope because then we start thinking about all the other elements of our footprint. But so I don't know that we really can give you any additional context unless Tory has something. No. No. I would just say that other than just balances, it's with a few people, so the expense base is pretty low, but they're very, very talented, hardworking folks. They've been able to bring new names into the company. They've got strong non-interest-bearing and interest-bearing deposits. They've got good, strong, almost solely C&I loan balances and really good fee income. 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. Very proud of the efforts that they've put in and the success that they've had. It's meaningful numbers. I mean, relative to the rest of the company, it's a smaller number, but it's a meaningful number. The ability 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. Gotcha. Lastly, Clint, on an imagine if you look at open bank M&A, if that's even an option, but you might be prioritized team lift-outs or anything from an acquisition standpoint. Is that anything you're looking at? Yeah. Our top priority is my prepared remarks. I said 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 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, that we're starting to prove that out. So I think we still have some work to do, but we live it every day. 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 mentioned earlier that we're still attracting talent. Whether it's a team lift-out, Tory mentioned the wine team that is one of the new groups that we started in the past nine months or so. If you think about that, I don't know. We probably interviewed 50+ people or looked at 50+ people from that organization and took 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. We're always looking at any opportunity that's there. I would say the lowest priority right now would be open bank M&A. I don't know what's going to happen with the election and that process. And we're just now getting the scar tissue healed up from the hell that we were put through in 2022, 2023. So never say never, but I don't think now is the time for that. We've got other priorities that are more pressing, and I think will drive more shareholder value over the long run. Okay. Thank you. Thank you. One moment for our next question. Our next question will be coming, excuse me. Our next question will be coming from Chris McGratty of KBW. Your line is open. Oh, great. Thanks. Ron, just a quick one on the fourth quarter expense range, the annualized $965-$985. 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 Q4, midpoint probably makes the most sense. Okay. That's all I have. 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 go ahead. 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.