Columbia Banking System, Inc. Q4 FY2022 Earnings Call

Good morning, and welcome to the Umpqua Holdings Corporation's Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. Please be advised that today's conference is being recorded. At this time, I would like to introduce Jacque Bohlen, Investor Relations Director at Umpqua to begin the conference call.

Thank you, Catherine. Good morning, and good afternoon, everyone. Thank you for joining us today on our fourth quarter 2022 earnings call. With me this morning are Cort O'Haver, the President and CEO of Umpqua Holdings Corporation; Tory Nixon, President of Umpqua Bank; Ron Farnsworth, Chief Financial Officer; and Frank Namdar, Chief Credit Officer. After our prepared remarks, we will take questions. Yesterday afternoon, we issued an earnings release discussing our fourth quarter 2022 results. We have also prepared a slide presentation, which we will refer to during our remarks this morning. Both these materials can be found on our website at umpquabank.com in the Investor Relations section. 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 Slides 2 and 3 of our earnings presentation as well as the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures alongside our discussion of GAAP results. We encourage you to review the GAAP to non-GAAP reconciliation provided in the earnings presentation appendix. I will now turn the call over to Cort.

Okay. Thank you, Jacque. For the fourth quarter, we reported earnings available to shareholders of $83 million. This represents EPS of $0.38 per share compared to the $0.39 reported last quarter and $0.41 reported in the fourth quarter of last year. On an operating basis, which excludes a number of interest-rate driven items and merger expenses that Ron will review, EPS of $0.46 compared to $0.47 last quarter and $0.44 in the fourth quarter of last year. For the variance between 2022 and 2021 fourth quarter EPS was minimal; the components shifted dramatically as higher interest rates and 16% loan growth during 2022 drove a 31% increase in net interest income, quarter over quarter, leading to a 25% increase in pre-provision net revenue despite the dramatic decline in mortgage banking revenue. Over the past year, we have made a number of structural changes within the mortgage banking segment, intended to reduce expenses, limit the impact of MSR changes to the income statement and moderate portfolio mortgage growth. Additional actions planned through this quarter will continue this work. Mortgages remain an important product for the bank and for our customers, and we remain committed to serving our communities throughout the West. However, we are shifting our mortgage operations towards a retail bank model and we expect a smaller gross and net impact on financial statements compared to our prior operating model. Turning now to our pending merger with Columbia Banking System. We announced earlier this month that we received FDIC approval and intend to close at the end of February. Our teams are focused on closing and core system conversion scheduled for this quarter alongside a heightened level of customer outreach. We are laser-focused on execution and we look forward to providing you with an update on next quarter's call when we are officially one team. As you know, there are a lot of moving parts over the next couple of months and our near-term focus is on achieving targeted cost savings, providing high-touch service to our customers as we complete the integration process and giving our teams and our associates the tools to drive the revenue synergy opportunities that we have been discussing for over a year now. Back in October of 2021, we never imagined there would be over 16 months between announcement and close. However, there has also been significant upside to this timeline. We have been waiting, but we have not been idle. The joint culture work, which was originally planned to occur post-closing has touched the majority of Umpqua associates and Columbia associates and it has set a framework that enables us to be one team on day one. The planning, prepping, and brainstorming that has taken place over a year has enabled the development of synergistic products and tools, and we are excited for our combined teams to use them immediately. Further and perhaps more importantly, the earlier decoupling of our integration planning from legal day one enable us to maintain our originally scheduled core conversion date this quarter, despite our targeted February 28 closing date. I want to take this opportunity to thank our dedicated associates for the countless hours and incredible effort that they have put into their work. I'm impressed and humbled by your dedication. I joined Umpqua Bank in 2010 and have been honored to lead this outstanding organization for the past six years. While it may be bittersweet to pass the reins, I know I am placing them in capable hands. As Executive Chair, I look forward to watching the combined organization serve customers and its communities throughout the West while providing enhanced shareholder returns. With that, Ron, take it away.

Okay, thank you, Cort, and for those on the call, I want to follow along. I'll be referring to certain page numbers from our earnings presentation. Starting on Page 9 of the slide presentation, which contains our performance ratios both on a GAAP and operating basis. The adjustments to our internal operating measures include various fair value changes from interest rate volatility along with merger and exit disposal costs, which are detailed in the appendix on Slide 30. Our NIM continued to strengthen, up 13 basis points in Q4 to 4.01%. Our GAAP PPNR ROAA was 1.82%, while our operating PPNR ROAA was 2.1% and operating ROTC increased to 16.2%. Turning to Page 10, which contains our summary of quarterly P&L. Our GAAP earnings for Q3 were $83 million or $0.38 per share. On an operating basis, we earned $99 million or $0.46 per share. For the moving parts as compared to Q3, net interest income increased $17.9 million or 6%, representing continued earning asset growth combined with the recent Fed rate increases. We had a provision for credit loss of $34.9 million with the increase driven primarily by slight deterioration in the consensus economic forecast. Noninterest income increased mainly related to changes in the nonoperating fair value marks as detailed later in the appendix and noninterest expense increased $17 million mainly from merger expense and a nonrecurring increase in other expense. As for the balance sheet on Slide 11, loans were up $650 million and deposits increased $250 million. This difference, net of the decrease in spring cash was funded with short-term borrowings and the lift in investments AFS related primarily due to a lower unrealized loss. Our total available liquidity including off-balance sheet sources ended the quarter at $12 billion, representing 38% of total assets and 44% of total deposits. As noted on the bottom of Slide 11, our tangible book value increased in part due to the lower AOCI rate mark on AFS investments. Slide 13 highlights net interest income building the increase to $306 million in Q4 resulted from the recent rate increases along with continued strong loan growth. From a rate-volume standpoint, the increase in rates led to $16 million of the $18 million increase with volume and mix making up a $2 million difference. Following that, on Slide 14 of the presentation are the trends for our net interest margin. Again, our NIM increased 13 basis points in total to 4.01% in Q4. It represents a waterfall on the margin change on the right of the page, noting that our loan and cash yields more than offset rising funding costs. Key for me here is following the 125 basis point increase in the federal funds rate during Q4, our NIM for the month of December was 4.02%. The next slide includes information on the repricing and maturity characteristics of our loan portfolio, noting no significant change in the repricing mix this past quarter. And following that, on Slide 16, on the upper left, we have included our projected net interest income sensitivity for future rate changes in both ramp and shock scenarios over two years. This is a simulation we run and back test quarterly and assumes a static balance sheet. The upper right shows our sensitivity from last quarter and comparing the two, even though we've taken steps this quarter to reduce sensitivity and will continue to do so in future quarters. The deposit beta used in the current simulation is 53% on interest-bearing deposits for future rate changes. The table on the left shows our deposit betas from the current rising rate cycle, while on the right we show them from the last rising rate cycle for comparison. Our beta then was 42% on interest-bearing deposits. Our cost of interest-bearing deposits increased from 23 basis points in Q3 to 77 basis points for Q4. Our cumulative data for this cycle to date is now 18% on interest-bearing deposits. The spot rate at year-end was 107 basis points. We expect interest-bearing deposit costs to increase again in Q1 but stay well below our model level. Next on Slide 17, we detailed our consolidated non-interest income trends, netting continued weakness within our mortgage banking segment was mostly offset by a positive fair value change on loans carried at fair value. Turning to Slide 18 on expense, the majority of the increase this quarter related to merger expense for our upcoming combination with Columbia. In addition, we had an increase in state and local taxes along with other expenses which I did not view as recurring. The next two pages include the segment disclosures on a GAAP basis, the core banking segment on Slide 19 and the mortgage banking segment on Slide 20. The operating non-GAAP stats by segment are later on Slides 32 and 33. Suffice it to say the core banking segment continues to benefit from rising rates and continued loan growth, while Mortgage Banking reported a second consecutive quarterly loss. Cort mentioned plans underway earlier within Mortgage Banking. A couple of final remarks before I turn it over to Frank. On Slide 22, we've included the quarterly loan balance roll forward. Quarterly loan growth was driven by $1.3 billion in new originations in net advances, offset by $0.6 billion in payoffs and maturities. We've intentionally slowed down non-relationship lending production, given continued pressure with industry-wide deposit outflows following continued tightening by the Fed. Slides 23 and 24 provide additional statistics and composition on the portfolio and there are no significant changes in the quarter. Next, let me take your attention to Slide 25 on CECL and our allowance for credit loss. As a reminder, our CECL process incorporates a life of loan reasonable and supportable period for the economic forecast for all portfolios, with the exception of C&I which is a 12-month reasonable and supportable period reverting gradually to the output mean thereafter. We use the consensus economic forecast this quarter updated in November. Overall, the forecast reflected continued high expected inflation and interest rates with a slight uptick in peak unemployment rates. With this, we recognized a $32.9 million provision for credit loss with $7 million of that for the quarter's loan growth and $26 million for the slightly deteriorating economic variables. This page shows the commercial and leasing portfolio driving the majority of the increase for their most sensitive to the unemployment rate forecast, which again increased slightly on peak from 4.1% to 4.5% over the horizon. The ACL increased to 1.21% at quarter end, up from 1.16% in Q3. Lastly, I want to highlight capital on Page 27. Moving that all of our regulatory ratios remain in excess of well-capitalized levels, our Tier 1 common ratio was 11% and our total risk-based capital ratio was 13.7%. The Bank level total risk-based capital ratio was 12.9%. We declared a $0.21 per share dividend on January 11, payable in February to holders of record as of January 23, and equivalent to the fourth quarter's level. Given our targeted February 20 closing date for our merger with Columbia, we expect the next dividend action to be determined by the combined Board. With that, I will now turn the call over to Frank Namdar to discuss credit.

Thank you, Ron. Turning back to Slide 26, our nonperforming assets to total assets ratio of 0.18% was relatively steady with past quarter's levels. Our classified loans to total loans ratio of 0.73% was similarly stable. Our annualized net charge-off percentage to average loans and leases was 19 basis points in the quarter, up 8 basis points from the third quarter's level as net charge-off activity within the FinPac portfolio increased as expected. Following elevated charge-offs and strategic credit tightening implemented during the pandemic, charge-offs in the FinPac portfolio were notably below the historic 3% to 3.5% range for several quarters. As we have discussed on past calls, we have anticipated a gradual migration to historical norms within the portfolio and accordingly, FinPac net charge-offs increased to 2.84% in the fourth quarter. The uptick from 1.36% in the third quarter reflects an increase in net charge-offs primarily within FinPac's transportation portfolio. On a risk-adjusted basis, the FinPac portfolio, which is 6% of our consolidated loan portfolio, remains the most profitable segment of our loan book with an average risk-adjusted yield in the 10% range. It can also serve as an early warning indicator of trends that may shift to the overall portfolio. However, we do not see any associated weakness in the bank portfolio, which had a charge-off level of just 1 basis point in the fourth quarter. For context, bank charge-offs of $550,000 for the fourth quarter and only $2.7 million for all of 2022 is a near de minimis level of activity on a portfolio nearing $25 billion. We continue to be very pleased with our credit quality metrics. We remain confident in the quality of our loan book as we continue to pursue high-quality loan growth balanced with effective and active risk management practices. Back to you, Cort.

Thanks, Frank and Ron for your comments and now we will take your questions.

Our first question comes from Jared Shaw with Wells Fargo. Your line is open.

Hi, guys, good morning.

Good morning.

Yes. Maybe looking at the jumping-off point here for margin as we go into the year, we've got great yields on loans, and it looks like maybe you've benefited from some spread widening and beta is performing better than earlier expected. Do you think with that starts to revert to a more normalized level both spreads and maybe data quickly at the beginning of '23? Or are you optimistic that those benefits will stay with us longer?

Hi, Jared. This is Ron, good morning. We discussed the spot rate on deposits, which was 107 basis points at the end of the year. We expect to see a continued rise in spending on deposit costs in Q1. We will also benefit from an additional almost 100 basis points on earning asset yields when comparing the quarter amount to the December amount looking ahead. Thus, I am confident that the margin will remain around current levels as we move into the next quarter, definitely not falling back to previous levels. Now, I’ll turn it over to Tory to discuss the spreads.

Hi Jared, it's Tory Nixon. On the spread front, I think, we've been pretty fortunate that spreads have stayed level for us for the most part in our C&I business and our real estate business. The one difference is we saw spread increases in some of the construction business, so we feel pretty good about that. I know that there are other places where that's contracting, but for us, we seem to be holding pretty steady. I think it's kind of a mix of our customer base.

Okay, great. That's a good color. Thanks. And then, just as a follow-up, when we look at the mortgage banking business and some of the restructuring that you're going to do there, what should we be thinking mortgage banking revenues look like as a percentage of fee revenue once that model is fully reflected and integrated across the broader franchise?

Hi, Jared, it's Ron. I'd say obviously lower from that standpoint but also volumes and expand some profitability or contribution to the bottom line will also be lower. So the key on that is much less volatility and we've got the hedging on the MSR asset at this point, but it's hard to say what a specific percentage would be; we will definitely update you as we get through the balance of the changes here over the coming quarters. We'll talk about it in April and July as we look out for the balance of the year on a combined basis.

Okay. Great. Thank you.

Thank you. One moment. We have a question from Jeff Rulis with D.A. Davidson. Your line is open.

Thanks. Good morning. Just a question on the expense side. I think you've got operating expenses at 181, wanted to get a sense for any further cost savings versus I don't know if it's sold NextGen stuff or versus growth and kind of melding the banks. Just thinking about that 181 number, is there any give to go lower than that or is that a pretty good number to use in modeling?

I would suggest it's probably less than that, particularly considering what has occurred in home lending. I don't have the specific figure at hand, but 181 represents our operating expenses. Additionally, we mentioned that there are about $5 million in non-recurring state tax adjustments that are recorded as other expense net income tax expense. Therefore, you could easily reduce that figure by that amount plus another $3 million to $3.5 million, which would bring the rents down to the low 170s, and that doesn’t account for further reductions in home lending going forward.

Okay. So that tax true-up or whatever that figure was that was included in your 181 operating means that should back out.

Correct. Yes, correct.

Got you. And then on loan growth, I heard the comments from Frank and Cort in terms of sort of looking at risk out there and it doesn't appear to be spreading outside of the FinPac portfolio. I was kind of thinking about loan growth for '23, I think just high-level where you see a growth rate, what seems doable?

Hi, Jeff, this is Tory Nixon. I think we remain very active on the prospecting side and on the sales side. The customer base of the company has shifted quite significantly over the last several years and we will continue to look for full banking relationships in the C&I space in particular. So I see growth there continuing for the company and we continue to hire folks and we continue to kind of work on the product side. I feel good about loan growth for us over the coming year. I think demand is certainly down from 2022. Pipelines are down a little bit, but there's still really good activity, especially in the C&I space. I feel comfortable in the mid to low single-digit loan growth number and I'm excited to see a current set of bankers continuing to work with our customers and continuing to find prospects that we want to bank.

Okay. Thank you.

Thank you. And our next question comes from Brandon King with Truist. Your line is open.

Hi, good morning.

Good morning.

Yes. So I wanted to get a sense of what your assumptions are for deposit mix shift. In the quarter that were outflows from DDAs into interest-bearing, I saw there's an uptick in CD deposits. So I just want to get a sense of what your assumptions are there in your current CD strategy?

Brandon, this is Ron. You say assumptions, you're talking about just in terms of our interest rate sensitivity analysis?

Do you see continued remixing of DDA accounts into interest-bearing accounts going forward?

Got it. It's difficult to pinpoint a specific percentage. In the fourth quarter, we observed that about two-thirds of the decline in demand deposit accounts came from consumers, while roughly a third was from businesses. On the consumer side, we noted flat income levels but a 10% increase in outflows, which contributed to the overall decline. It's uncertain if this trend will persist at that rate. I anticipate ongoing pressure on deposits throughout the industry as the Federal Reserve tightens its policies, likely resulting in a mixed impact. We have implemented some exception pricing to retain larger, more cost-sensitive deposits, which I expect will continue into the first quarter. Overall, there might be an increase in interest-bearing accounts, and the shifting trends in the industry will play a role in this. However, we are still experiencing pressure on the mix of demand deposit accounts.

Got you. And if the current CD strategy to kind of term out these time deposits, are you looking for more shorter-duration funding?

On the CD side it would be generally between six and 12 months in that standpoint. On the borrowing side, we've been in the two to four month range, just given liquidity coverage ratio considerations.

Okay. And then wanted to dig a little deeper into loan growth. Multifamily has been a key contributor for a while now. Just curious what the outlook there is for multifamily growth in as far as how demand is looking and then also in consideration of other banks kind of seems like they might be pulling back from this space given concentration concerns.

Yes, Brandon, this is Tory. The multifamily business is quite complex for us. We engage in a significant amount of multifamily lending through our real estate group, and we also have a dedicated multifamily division. This division has experienced considerable growth in 2022, driven by strong demand. However, the demand is very sensitive to interest rates, leading to lower demand for our products compared to the historical levels seen in 2021 and 2022. As a result, our growth in this area has been relatively flat. We remain active in this space where possible, especially with larger projects, but I anticipate that the outlook will also remain flat over the next six to nine months.

Okay. Very helpful. Thanks for taking my questions.

Thank you.

Thank you. And we have a question from Andrew Terrell with Stephens. Your line is open.

Hi, good morning. Maybe you can go back to just the DDA balances specifically on kind of the consumer side. I would be curious as you look at kind of consumer accounts that your bank, if balances today still remain elevated compared to pre-COVID levels. I'm just trying to get a sense of if there's still kind of any surge deposits remaining in the bank or any type of analysis you've done there.

Andrew, this is Ron. It's difficult to give a specific beat on it. Just given the trends and outflows, but obviously they are lower. Just hard to identify, just given the cash is fungible right; let's still consider surgery. I would say this, though: when you think back to where the bank was five years ago, ten years ago, three great recession, obviously much lower DDA mix. One of the key items here that keep in mind, while I don't expect the mix to revert back to those levels over time, it's just a significant business mix shift and changes that Cort and Tory made over the last decade. So, much higher level of commercial balances within the deposit book today which will give us some stability. I think right now what you're seeing is, just real instantaneous reactions with the Fed tightening and inflation on the consumer side, so that continues. I expect that to also continue in terms of outflows in DDA. But overall, nowhere near where it was decades plus back, just given the mix shift with the customers.

Yes. That's a good point. I appreciate that. And if I can maybe go back to just the mortgage commentary for a moment. I realize it's probably tough to think about the go-forward kind of mortgage contribution as a percentage of fees or revenue, but can you just maybe talk about specifically, post some of the actions that you're going to take, and maybe shifting toward the more retail mortgage business. I guess, just structurally, how does that change the profitability within your mortgage business going forward?

Hi, Andrew, it's Cort. So traditionally, until 2022, we had operated our mortgage group home lending, as we call it, as more of a traditional first mortgage operation company, if you will. And obviously with rates doing what they did and with the movement we saw, we are going to transition to more of a retail model. What do we mean by that? Our in-place mortgage lenders and retail locations operating in support of their local communities and the branches. That's what that generally has traditionally meant which is a change for the way that we have served our local markets. To your point, it's hard at this point to give any indication of where we think volumes are going to be, and it has a lot to do just with volumes in the communities and under themselves alone, where we get with staffing. Staff, I'll Tory comment a little bit on where you think staffing will settle out. This is all done, we're making these moves right now, actually since the beginning of the year. We'll make them during the quarter. So Tory some guidance on FTE.

Yes, thanks, Cort. The industry is contracting and demand is significantly lower than it was, and we're responding to that. At the peak of our home lending business during the pandemic, we had around 650 associates, but today we are in the high 300s. We are actively reducing that number and expect to settle between 200 and 250 employees. As we transition to this new model, our focus is on continuing to serve our customers, including retail, private bank, and commercial clients, as well as our communities. This is the direction we are moving towards over time, and we will reach our goal.

I just want to add one follow-up, just to make sure because there are other people listening to this call, not just the analyst community. This does not mean, like I mentioned in our opening comments, we are not committed to first mortgage finance; we are. We've made a strong commitment in our Community Benefits Agreement for our work on our merger to provide low to moderate-income finance, low to moderate-income communities, which we are firmly committed to, and we've created a group inside mortgage lending to serve that community. I just want to make sure it goes on the record. This does not mean we are pulling out of mortgage. It has been a big part of this bank for as long as I've been here and longer than that, and it will continue to be a key part of our business as we continue to serve when we double in size here in about six weeks.

Andrew, this is Ron. I'm just going to add in on Cort and Tory's comments. Obviously, the goal is going to be to have a profitable mortgage business within the redesign we talked about earlier. So, but it's hard to get a beat on specifically the metrics: sale margin minus expense just nonetheless positive compared to the last couple of quarters. The other thing I'll also add is going forward, given the size, we expect it to move to, it will no longer be a separate segment. So we'll talk about it, just in terms of fee income changes and expense level changes.

Okay, very good. I appreciate all the color. If I could sneak one more in, just maybe now that there is a closing date set for the acquisition, which was good to see. Any thoughts on kind of pro forma capital levels or updates to the fair value marks or just kind of wait until deal close?

Andrew, this is Ron again. I'd say, let's wait till deal closes just given the volatility rate changes, so much. But that's also one of the reasons why we have excess capital going into this to be able to utilize that. And I guess I'd also point out that wherever that ends up, that will also turn into additional capital accretion over time pretty quickly from that standpoint. So there is obviously we'll talk more about that in April.

Good morning, and thank you for the questions. To clarify, the standalone non-interest expense run rate is in the low '170s when excluding the unusual tax accruals for this quarter and lower mortgage expenses. Does that low '170s run rate take into account the typical merit increases for non-mortgage compensation this year?

Hi Matthew, this is Ron. Merit increases typically occur towards the end of the first quarter or very early in the second quarter. Looking ahead to the first couple of quarters of '23, you will notice an increase in that rate. Generally, in the first quarter, you see that increase, and then it levels off for the remainder of the year. The merit increases will come in during Q2 and will also benefit from the combined cost savings by the fourth quarter of next year. We will provide more updates on this as we approach the close and definitely provide an outlook on that front.

Okay. Just, just to clarify, though, for the first quarter, low '170s does include any seasonality you might have?

Correct. Also noting home lending expense will be lower as well in that number.

Okay, great. Just to follow up on the margin, do you have the average monthly NIM for December? I believe you mentioned it earlier.

Yes, 4.02%.

4.02%, great.

Yes, 4.02% for the month of December.

Okay, great. And then just on the pro forma capital and kind of assuming it maybe shakes out to a level where you have some nice excess capital. Can you just remind us around the process to be able to repurchase stock given your negative retained earnings and whether or not you still be constrained by that on a pro forma basis?

Yes, we will carry forward the accounting acquirer combination. Our balance sheet will reflect the fair value of the Columbia balance sheet. The process is fairly straightforward, involving a quarterly non-objection process with the state and the FDIC, which relates to historical banking losses driven by credit issues. This goodwill is excluded from capital, but we still need to collaborate with the FDIC. We currently navigate this process for bank dividends to the Holdco, similar to how we handle share repurchases while maintaining a close watch on both base forecasts and stress forecasts, as well as excess capital. Approximately a year and a half ago, we had repurchased stock as the combination was realized. Overall, it’s a straightforward process, and I don’t anticipate any changes moving forward, aside from a much quicker path to positive retained earnings based on current rates and future accretion.

Yes. Great, thank you.

Thank you. And we also have a question from Chris McGratty with KBW. Your line is open.

Thank you for the question. Ron, regarding the balance sheet, you have the opportunity to make some adjustments if needed. I'm interested in your thoughts on what you might consider, particularly in relation to the securities portfolio and lending concentrations. You mentioned FinPac at about 6%, which will be diluted, but do you have any broad comments on potential changes to how we should view the balance sheet?

Yes, I mean we'll talk more about it in April, but pretty consistently in this environment it's a function of reducing sensitivity. So within the bond portfolio will be looking to extend duration longer out and funded with two to four month advances will help reduce sensitivity depending on where rates go in the future. So that's probably the primary one from that standpoint. And then just be a matter of managing the borrowings to the extent the Fed continues to chime in.

And then I guess more on.

Okay. Let me add to that; the second part of your question was about our loan concentrations. There is no need to adjust anything on the lending side; we have a strong mix and the capacity to continue at full speed in any vertical, including FinPac.

Thanks, Ron. Regarding credit, I understand the difference between FinPac and the rest of the portfolio. If you are preparing the outlook for 2023 and the economic situation is quite uncertain, where else apart from FinPac are you focusing your efforts to identify potential issues?

Hi, Frank Namdar. In the commercial real estate space, particularly regarding office properties, there is still a significant element of uncertainty regarding their future. Those of us who manage risk tend to prefer clarity and dislike surprises, so we strive to anticipate developments. However, as of now, we do not have any office properties that are flagged as special mentions or classified assets. The situation remains stable and strong at this time, but we are closely monitoring this area.

Okay, thanks.

Thank you. And there are no other questions in the queue. I'd like to turn the call back to management for any closing remarks.

This is Jacque Bohlen and we would like to thank you for your interest in Umpqua Holdings Corporation and participation on our fourth quarter 2022 earnings call. Please contact me if you would like clarification on any of the items discussed today or provided in our presentation materials. This will conclude our call. Goodbye.

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