Earnings Call Transcript - COLB Q4 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Columbia Bank System's Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded.

Clint Stein, President and Chief Executive Officer

Thank you, Catherine. Welcome and good afternoon, everyone, and thank you for joining us on today's call as we review our fourth quarter and full year 2021 results, which we released yesterday after the market closed. The earnings release and accompanying investor presentation are available at columbiabank.com. 2021 was another record year for Columbia, in terms of loan production, balance sheet growth, wealth management fees, and earnings. For the first time in our history, net income exceeded $200 million, assets surpassed $20 billion, and $2 billion of new loan originations were generated outside of the PPP program. We closed the Bank of Commerce Holdings acquisition on October 1st and on October 12th announced our pending combination with Umpqua Holdings. The BOCH integration has progressed as planned and will conclude during the current quarter. A constant theme on every earnings call over the past two years has been our commitment to remain open and laser focused on helping our clients keep pace with the changes affecting their lives and businesses. The efforts to which our bankers have gone to support each other and our communities has been impressive. And it's typical of who we are, working to build strong relationships, being innovative, and growing our people is the bedrock of our culture. It was in place long before COVID-19 and has guided our operations throughout the pandemic, and it will continue to propel us as we work to meet new challenges and grow. So, we transformed from a $21 billion company into the leading regional Bank in the West. I want to thank all of our bankers for their dedication to keeping relationships with clients and each other at the forefront. We will continue to work hard for each other, our communities, and our shareholders. On the call with me today are Aaron Deer, our Chief Financial Officer; Chris Merrywell, our Chief Operating Officer; and Andy McDonald, our Chief Credit Officer. Following our prepared remarks, we'll be happy to answer your questions. I do need to remind you that we may make forward-looking statements during the call. For further information on forward-looking comments, please refer to either our earnings release, our website, or our SEC filings.

Aaron Deer, Chief Financial Officer

Thank you, Clint. Full year net income of $203 million and EPS of $2.78 included a full quarter of earnings from our Merchants acquisition of approximately $4.3 million. Our performance was a reflection of strong growth in loans, deposits, and fee income, combined with prudent spending and strategic investment. Excluding costs related to the Merchants acquisition and Umpqua combination of $14.5 million, pre-tax pre-provision income was a record $282 million, exceeding the prior record set in 2020 by $12 million. Fourth quarter earnings of $42.9 million and EPS of $0.55 were a linked quarter decrease of $10.1 million and $0.19 respectively, mostly due to the Day 2 provision for the Merchants loan portfolio. Quarterly pre-tax pre-provision earnings declined by $1.9 million to $66.7 million with the decrease attributed to $9.6 million of higher merger-related costs and $6.3 million less interest income from the PPP portfolio, partly offset by the full quarter earnings for Merchants operations. Total deposits exceeded $18 billion at year-end, up $2.1 billion from September 30th and $4.1 billion over the past year. The Merchants acquisition contributed $1.7 billion to the sequential increase and our cost of deposits held steady at an all-time low of just 4 basis points for both the quarter and the year. This is down from 7 basis points for all of 2020. The Merchants acquisition added over $800 million of liquidity to the balance sheet, propelling the investment portfolio to $8.1 billion with 27% held to maturity and 73% available for sale as of year-end. The securities investment yield increased on a linked quarter basis from 1.82% to 1.98%. However, both quarters benefited from the prepayment of interest. Absent this, the investment securities yield remained level at 1.73%. Encouragingly, new purchases during the quarter had an average yield above this level at 1.93% and a duration of 4.5 years. The net interest margin decreased 12 basis points on a linked quarter basis to 3.05%, mostly due to a decrease in the loan yield, driven by a reduction in accelerated PPP fees and partly offset by higher yields in securities due to prepayment interests. Excluding PPP fees and prepaid interest, the net interest margin declined 1 basis point to 2.99%. The impact to margin from the Merchants acquisition was minimal. For the year, the net interest margin decreased by 48 basis points due to reductions in loan and investment yields at 30 basis points and 42 basis points respectively, as well as greater liquidity on the balance sheet. PPP loans added 8 basis points to the margin in 2021 driven by $19 million of accelerated fee recognition as loans were forgiven. This compares to 2020 where PPP loans negatively impacted the margin by 2 basis points with only $6 million of accelerated fee recognition. We believe our balance sheet is very well positioned for a prospective rise in interest rates. Given its asset sensitivity, we see a significant opportunity in terms of improving yields as the Fed begins to normalize monetary policy. Currently, $2 billion of loans within the portfolio were at their floor and we anticipate $658 million to increase with a single 25 basis point rate hike. Meanwhile, our deposit costs remain among the lowest in the industry. Total loans rose by $1.1 billion during the quarter to $10.6 billion with $1 billion coming from Merchants. Adjusting for PPP forgiveness and Day 1 Merchants balances, loans increased $228 million or 9% annualized. New loan production was brought on at an average tax-adjusted coupon rate of 3.57%, which compares to the overall portfolio, excluding PPP loans of 3.78%. Non-interest income increased $282,000 on a linked quarter basis to $24.2 million with $776,000 from Merchants. For the year, non-interest income decreased by $10.4 million, but when adjusted for the Visa B share gain of $16.4 million realized in the second quarter of 2020, it rose by $6 million on the strength of card revenues, financial services, and trust income. Non-interest expense increased $12.6 million on a linked quarter basis to $102.6 million and included $6.4 million of new run rate expenses from Merchants and an increase in acquisition and merger expenses of $9.6 million offset by a $2 million recapture for unfunded loan commitments. Our non-interest expense ratio declined to 1.97% for the quarter and our operating efficiency ratio decreased 3 points to 51%. With the addition of Merchants, we expect our quarterly non-interest expense run rate to be in the mid-90s range in 2022, excluding deal costs. Expenses could start the year a little higher given seasonal factors and without the benefit of the Merchants systems conversion planned for late this quarter. The provision for income taxes was down slightly linked quarter to $13.1 million representing the 23.4% effective rate. The higher rate stems from certain non-deductible merger costs, income earned in California, and other factors that true-up our full year effective rate to 20.9%. We expect our 2022 effective rate to be similar to the 2021 rate.

Christopher Merrywell, Chief Operating Officer

Thank you, Aaron. We had strong core loan growth in the fourth quarter powered by record production. Excluding PPP loans, quarterly production of $640 million was a new all-time fourth quarter high, propelling full-year production to $2 billion for the first time in Columbia's history. Normal seasonality provided a bit of a headwind during the quarter with line utilization falling to 43% and we continue to refill our pipelines and they remain to our satisfaction. Loans ended the year at $10.6 billion, which was up $1.1 billion or 12% and excluding the PPP portfolio, up $1.3 billion or 14% during the quarter with $1 billion attributed from Merchants. Growth in CRE led the way during the quarter with $307 million of production predominantly with rental and leasing properties, followed by C&I production of $199 million spread across all sectors. During the quarter, the mortgage team originated and sold $75 million of loans with the mix 30% purchase and 70% refinance. For all of 2021, $353 million of mortgages were originated and sold. The quarterly production mix was 62% fixed, 29% floating, and 9% variable. The overall portfolio now stands at 2% PPP, 53% non-PPP fixed, 30% floating, and 15% variable. PPP loans were $184 million at the end of the year, and Merchants added $40 million with overall payoffs during the quarter of $171 million. At year-end, deferred fees related to the PPP portfolio totaled $3.8 million. With the addition of Merchants, the geographic loan distribution is now 45% Washington, 31% Oregon, 12% California, and 5% Idaho with the remaining 7% in other states. We rose to number one SBA position in the Seattle district and are now the leading SBA lender in both the Seattle and Portland districts. Going forward, we have our sights set on being the leading SBA lender in all of the communities we serve. As was mentioned, deposits grew by $2.1 billion during the quarter with $1.7 billion from Merchants. The deposit mix did not change remaining at 60% business and 40% consumer at year-end. The product mix shifted slightly from 50%-50% to 49% demand and 51% interest-bearing. Clint mentioned the record-setting year that our Wealth Management Group had nearing $16 million in revenue. This has been the culmination of years of building internal partnerships and our focus on deepening existing client relationships and we are very pleased with the progress.

Andrew McDonald, Chief Credit Officer

Thank you, Chris. The primary driver of the increase of $12.8 million in the allowance for credit losses over the quarter to $155.6 million is the increase in the loan portfolio from the Merchants Bank of Commerce acquisition. Our Day 1 allowance for credit loss reserve of $2.6 million was added for purchase credit-deteriorated loans in the acquired portfolio, and a $16.2 million provision was added for the remaining loans. These additions were partially offset by a more favorable economic forecast and improvements in the credit quality of the overall portfolio. The IHS Markit economic forecast is more favorable than last quarter, particularly with respect to unemployment, which is a major driver for the model. Last quarter, the unemployment rate was expected to end 2021 at 5% and remain above pre-pandemic levels through the end of 2022. The current forecast assumes the unemployment rate in 2021 at 4.4% and remains at or below pre-pandemic levels throughout the forecasting period. The current forecast for GDP continues to be healthy, with a full-year GDP growth expectation for 2021 remaining the same as the forecast last quarter at 5.7% and growth expectations for 2022 only slightly lower than the forecast last quarter at 4.3%. Despite the continuing challenges the pandemic has been causing, our borrowers have been able to adapt to this new environment and have shown great resilience. NPAs for the quarter improved 2 basis points to 11 basis points, and pass-through loans were only 7 basis points. Net charge-offs annualized were 13 basis points, and our impaired capital ratio improved from 26.2% to 21.7%. We are continuing to see credit quality improve across the whole portfolio, and on the risk-rating front, loans rated watch or worse declined from $724 million to $626 million as of year-end.

Clint Stein, President and Chief Executive Officer

Thanks, Andy. This concludes our prepared comments. As a reminder, Andy, Chris, and Aaron are with me to answer your questions. And now, Catherine, let's open the call for Q&A.

Operator, Operator

Thank you. Our first question comes from Jeff Rulis with D.A. Davidson. Your line is open.

Jeff Rulis, Analyst

Thanks. Good morning.

Clint Stein, President and Chief Executive Officer

Good morning, Jeff.

Jeff Rulis, Analyst

Hi, Clint. Maybe I'd just start with, not to make a big deal out of this, but the lending team announcement that you had this week. I think it's a pretty good proxy for a group that at least was aware of the pending merger with Umpqua. And I guess, maybe the timing of those discussions had you engaged with those folks prior to the Umpqua merger? And then secondly, just are there maybe kind of talk about their attraction to the platform given the merger and how their confidence kind of going forward, if you could?

Clint Stein, President and Chief Executive Officer

I'll share what I can. Regarding the timing, it took place after the announcement. We believe we are establishing a franchise that hasn't been present in the Northwest for the last 25 or 30 years. Commercial and Industrial bankers want to join an organization where they can address their clients' current needs and strengthen relationships as those businesses expand. They were impressed by our current capabilities as well as the information we provided about our merger with Umpqua. This excitement sparked conversations, and they have quickly begun their work. While I won't disclose any figures, I was pleasantly surprised by their current activities, which are keeping Andy busy. Additionally, we've taken steps to enhance our presence in the Phoenix market for our national healthcare platform, which we believe will complement Umpqua's initiatives and recent hires in that area. We're also engaged in discussions with other markets and teams interested in joining us. More updates will come later, but it reflects the familiarity and confidence people have in our organizations, Columbia and Umpqua. This reinforces my belief that we share more similarities than the market has perceived.

Jeff Rulis, Analyst

Sure. That's a good perspective, I appreciate it, Clint. To change the topic, Aaron, could you provide some details on the expenses? Can you outline how those are reflected in the income statement, particularly regarding the merger costs? I assume it's related to legal and data processing, but could you explain where those costs originated from in relation to the merger?

Aaron Deer, Chief Financial Officer

I can break that down for you. We've mentioned in the press release how it separates between the two deals. Of the total $11.8 million, $7.7 million is associated with Merchants, and $4.1 million is for Umpqua. By line item, approximately $4.9 million falls under compensation and benefits, around $300,000 is for occupancy, another $300,000 is allocated to data and processing software, $5.6 million is for legal and professional expenses, about $100,000 is for advertising and promotion, and roughly $600,000 is categorized as other expenses.

Jeff Rulis, Analyst

Got it. I wanted to follow up on your guidance regarding the mid-90s run rate on a quarterly basis, excluding the Umpqua transaction, which might be slightly higher in the first quarter. You discussed expectations for 2022, and considering growth rates, I think that establishes a good framework. Regarding cost savings for 2023, with a target of $135 million, what do you estimate as the underlying expense growth rate for that year? I realize this is looking ahead, but can we assume there will be some increase in the baseline, excluding the targeted cost savings?

Clint Stein, President and Chief Executive Officer

I think we're blending standalone and combined perspectives here. As Ron has mentioned in earlier calls, we feel confident about the expense savings targets we've set. Certainly, expenses are likely to increase due to inflationary pressures that we're aware of and have been experiencing, as well as the investments we plan to make in the business going forward. Therefore, there will be some growth in expenses. However, our internal targets for what we can achieve are more optimistic than the expense savings guidance mentioned in the deals announcement.

Christopher Merrywell, Chief Operating Officer

And Jeff, this is Chris, and I'll add some color to that. At the beginning of this year, we increased our starting wage to $18 an hour for our non-exempt teams. And as part of that process, and you've been with us a long time, you've heard of how we offset and we're always looking for how we can cover that additional expense. And we were able to find that offset through some of the financial things that we had. And so we feel really confident that we've covered that increase to our starting wage and it won't show up in our ongoing run rate.

Jeff Rulis, Analyst

Okay. I appreciate the detail there. Thank you. I'll step back.

Operator, Operator

Thank you. And our next question comes from Matthew Clark with Piper Sandler. Your line is open.

Matthew Clark, Analyst

Hey. Good morning, guys. Do you happen to know the amount of cost saves that you've realized to date in the Bank of Commerce deal and what's left?

Aaron Deer, Chief Financial Officer

I'll follow up with you on that, Matt. We're tracking right in line with what we expect. In fact, I think we might actually be a little bit ahead of what we're expecting. So, we're in good shape, but I don't have that number right in front of me at the moment. I can maybe try to pull it up before the call ends.

Matthew Clark, Analyst

Okay. And then just you may have hit this during your prepared comments, and I apologize if you did. But on the better than expected cost control this quarter, ex-merger charges held in a lot better than expected. Can you speak to anything unusual? I know you guided for the upcoming quarter and the outlook, but anything unusual this quarter?

Aaron Deer, Chief Financial Officer

I believe we had a $2 million benefit from the negative provision in the quarter. That might be what you're referring to.

Matthew Clark, Analyst

Nothing above and beyond that, though?

Aaron Deer, Chief Financial Officer

No.

Matthew Clark, Analyst

Okay. And then on commercial the real estate growth stepped up meaningfully this quarter. Can you speak to the underlying properties you guys are financing? And where you're sourcing the growth from in terms of customers, whether existing or new?

Clint Stein, President and Chief Executive Officer

Yeah. Matt, it's a combination of both and it's not straying from anything that we have typically done. We're looking at owner-user as well as other types of projects that are out there as well. But nothing that falls out moving away from our historic portfolio and what we would normally do. But I will say there is a good mix of existing clients as well as due to our approach, we continue to attract new clients from other institutions and that's got a really positive outlook as we go forward.

Matthew Clark, Analyst

Okay. And then just on the loan pipeline, if you could quantify it and how it compares to last quarter or year-over-year?

Clint Stein, President and Chief Executive Officer

We're still very pleased with it. Of course, it's down slightly after a record quarter as we've had previous record quarters. I think the piece there is while it's down slightly, we have all the confidence with what we've talked about previously of new team coming on and just the focus of our bankers of being external out in the market, talking to our clients, talking to prospects that we'll rebuild that and the prospects are good for this year by all means.

Operator, Operator

Thank you. And our next question comes from David Feaster with Raymond James. Your line is open.

David Feaster, Analyst

Hey. Good morning, everybody.

Clint Stein, President and Chief Executive Officer

Hi, David.

David Feaster, Analyst

Just I want to start on the growth side. I mean the growth exceeded forecast, record 4Q originations and digging into the numbers, it almost looks a little bit better when you look and see that payoffs and paydowns were pretty materially higher. Just curious whether there's just some noise in the payoffs and paydowns line from the Bank of Commerce deal or whether there's any other trends you're seeing? Just kind of taking this into account with the improving origination activity, less loan participations given the combination with Umpqua. Does this imply that we could actually see potentially accelerating growth just given the continued strong originations and normalizing payoffs?

Clint Stein, President and Chief Executive Officer

There's a lot to unpack here, David. We have been very pleased with the activity from Merchants, or rather the lack of payoff activity. The process we undertook to retain our teams, including Randy Eslick in leadership, has been successful. We've maintained our clients, many of whom are enthusiastic about being part of a larger organization that can meet their needs without looking elsewhere. This will only be enhanced as we proceed with the Umpqua combination. Regarding our legacy business, we did experience a fair amount of payoffs and paydowns this quarter from some commercial real estate transactions like property sales. However, the positive news is that our teams are active, and the origination levels are more than compensating for these payoffs. With rising interest rates, we might begin to see payoffs and paydowns diminish somewhat. Nonetheless, I remain cautious as businesses will continue to sell properties and engage in other activities. Overall, indicators suggest we are heading in the right direction, but there is still some way to go before we fully understand how things will turn out.

David Feaster, Analyst

Okay. That makes sense. And then just touching on deposits. Organic deposit growth has remained extremely strong. Just curious how you think about deposit growth as we go forward? Do you think loan growth might start outpacing deposit growth as we head into next year or just given the increase in contribution from C&I, would you perhaps continue to see outsized deposit growth?

Clint Stein, President and Chief Executive Officer

Yeah. Deposit growth is one that we spent a lot of time looking at. I would love to tell you we have the exact crystal ball that we can predict what's going to happen. I think the story there really is we've attracted the deposits. We've attracted new clients. We haven't changed our philosophy about how we price. So, we're winning these relationships and these deposits based on our capabilities, based on our bankers and the relationships and the solutions that they're providing. I think that puts us in a really good position should rates start to rise that we'll be able to maintain kind of our historical cost of funds that we've had on how we follow that up. But I think that what was really in there is, we have a lot of liquidity and we'll be very mindful as we start to see where the flows go from money being spent. I would caution that all the money being spent is staying in the system, and it comes right back around into another client's account typically. But more importantly, I want to point you back to our bankers are winning business. And that's bringing on new relationships and many of them are significant. And so, that's going to be a piece that if we started to see some deposits leave, I'm pretty confident we're going to continue to win that type of business and it should be able to offset it. All things being equal, that's where I would look at that aspect.

Aaron Deer, Chief Financial Officer

David, I want to emphasize that despite the deposit growth we've experienced over the last two years, our structural advantages in our deposit base remain intact, with approximately half being non-interest bearing and 60% oriented towards businesses. In 2021, we also achieved another strong year of deposit growth with minimal cost increase. Therefore, our high-quality deposit franchise has actually been enhanced with this growth rather than weakened. The challenge now is how to effectively deploy the liquidity that has exceeded loan growth. There is significant activity taking place, and Chris is eager about the economic developments in our current markets. We are also focused on our integration with Umpqua, maintaining momentum as separate entities, and have implemented an integration management office to shield our client-facing bankers from integration-related tasks. This strategy has already shown positive results over the past three months, and I anticipate that this momentum will carry into 2022 and 2023.

David Feaster, Analyst

That's a great point and connects to my previous question. I was hoping to get an update on the progress of the Umpqua merger discussions. Could you provide us with some insights and details about the Integration Management Office and what that team is currently doing to facilitate a smooth integration? Additionally, as you mentioned, we want to avoid any disruption for our producers.

Clint Stein, President and Chief Executive Officer

Chris and I had a discussion before the call about a client relationship that is significantly looking to expand its engagement with us in light of our upcoming merger with Umpqua. We also talked about production teams, particularly Eric Eid, who mentioned vendor selection and the process regarding our redundant facilities and excess space. This includes our HRIS system, which is more than just payroll; it encompasses how we train and develop our employees and integrates across the company. We're focused on the employee experience during this integration. Chris is concentrating on client relations, while the entire executive team is involved, but I'm just illustrating some examples of what they're working on. They're aiming to keep client-facing bankers focused and free from distractions. There’s considerable planning for the Day 1 close and consolidation of processes and policies. Chris and members of the Umpqua team, like Tory, are part of the steering committee and are involved, but not overwhelmed by it. However, Eric and Drew, his counterpart at Umpqua, are heavily engaged in integration planning activities right now.

David Feaster, Analyst

Okay. That's great color. Thanks, everybody.

Operator, Operator

Thank you. And we have a question from Jon Arfstrom with RBC Capital Markets. Your line is open.

Jon Arfstrom, Analyst

Hi, there. Jon Arfstrom, RBC. How is everybody doing?

Clint Stein, President and Chief Executive Officer

Good. How are you, Jon?

Jon Arfstrom, Analyst

Good. Question for you, Aaron, just on the margin. In the release, it feels like you're almost optimistic on the outlook for the margin or at least less pessimistic. If you set rates aside, how do you feel about just the prospect of margin stabilization, maybe some of the puts and takes you want us to think through?

Aaron Deer, Chief Financial Officer

I think we're getting close to a positive outlook. During the quarter, we saw a significant amount of prepay income on the mortgage bond book, totaling around $4.7 million, which is about three times what we usually see. This boost helped improve our investment securities yield for the quarter. The loan yields for the period showed a tax-adjusted coupon of 3.78%, with new loans coming in at 3.57%, similar to the previous quarter. While this fluctuates, the new loans are still coming in below the portfolio yield, suggesting some potential pressure ahead. However, we seem to be nearing a bottom or inflection point. Importantly, the conversation around potential rate hikes has shifted, evidenced by a significant increase in the 10-year yield over the past quarter, which we’re also observing in our new bond purchases. We anticipate that it may take a bit longer for this to reflect on the loan side, and spread compression could occur before we see the full benefits of higher rates. Our funding base is excellent, and our balance sheet is very asset sensitive, which is detailed in our investor presentation. We've added a new slide that shows a conservative perspective on our betas, even providing additional levels that could go as low as 15, which is still above the beta experienced during the last rate hike cycle. This illustrates how powerful higher rates can be for our net interest income as we hopefully benefit from this situation.

Jon Arfstrom, Analyst

Yeah. I was just going to, you answered my follow-up on that because it just feels like maybe your deposit base like others is a little bit different at this point than the last cycle. And I'd probably take the bet on lower betas at least early on, but I think that's the information.

Aaron Deer, Chief Financial Officer

On the same side, as you look at that. And also, to go back to Clint’s earlier comment too, here about the strength of our non-interest bearing deposits and how our clientele is truly differentiated with our commercial focus or the percentage of non-interest-bearing deposits, as a total percentage of the total increased during the last rate rising cycle, and there's not a lot of institutions to consider that.

Jon Arfstrom, Analyst

Okay. Andy, one for you, on the provision. It looks like absent Bank of Commerce, we would have had another negative provision of reserve release. How are you feeling about overall credit and is there anything that you would call out other than growth that would impact the provisioning going forward?

Andrew McDonald, Chief Credit Officer

Yeah. Your conclusion is correct. We would have had a release. Obviously, we're feeling pretty good with where the portfolio stands. We enjoyed a lot of healing during the quarter as well as during the year. I think that the economic forecast is beginning to stabilize, and as you know CECL is very dependent on the economic forecast that you use. So as that stabilizes, it will create less volatility in the model, and I think that the provision will become much more stable as well quarter-to-quarter. So in general, I feel good about credit quality and I feel optimistic about the levels of provisioning that we would have to do even given growth.

Jon Arfstrom, Analyst

All right. Thanks, everyone. That's all I had.

Andrew McDonald, Chief Credit Officer

Thanks, Jon.

Operator, Operator

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Clint Stein for closing remarks.

Aaron Deer, Chief Financial Officer

Actually, before we proceed, I want to address Matthew Clark's question regarding the cost savings from the Merchants deal. So far this year, we have achieved $2.3 million in annualized cost savings. By the end of this quarter, I anticipate we will reach approximately $9.3 million, which represents a little over 80% of our target. At this point, we expect to exceed our cost savings target. Everything is on track, and we feel positive about that. I’ll turn it back to Clint.

Clint Stein, President and Chief Executive Officer

Thanks, Aaron. Thank you for attending our fourth quarter call. We look forward to seeing many of you in the coming weeks. In the meantime, have a great day and goodbye.

Operator, Operator

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