Q4 2020 Umpqua Holdings Corp Earnings Call

January 21, 2021

[music].

Yeah.

Good morning, and welcome to Umpqua Holdings Corporation fourth quarter earnings call I will now turn the call over to Ron Farnsworth Chief Financial Officer.

Okay. Thank you Chris.

Thank you for joining us today on our fourth quarter 2020 earnings call.

With me. This morning are corp, or the president and CEO of Umpqua Holdings Corporation.

Tory Nixon President of Umpqua Bank, and Frank Namdar, our Chief Credit Officer.

After our prepared remarks, we will then take questions.

Yesterday afternoon, we issued an earnings release discussing our fourth quarter and full year 2020 results. We have also prepared a slide presentation, which we will refer to during our remarks. This morning. Both of these materials can be found on our website at Umpqua Bank Dot 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 page two of our earnings conference call presentation as well as the disclosures contained within our SEC filings.

Moving to I'll turn the call over to Cort O'haver.

Okay. Thanks, Ron I will provide a brief recap of our performance and then pass to Ron to discuss financials.

Namdar will discuss credit and then we'll take your questions for.

For Q4, we reported earnings per share of 68 cents setting a company record for the second consecutive quarter.

This was an increase of 11 cents or 19% from the 57, we earned in the prior quarter and an increase of 32 or 89% from the 36, we reported from the fourth quarter of 2019.

These earnings were driven by another quarter of incredible production and our home lending Division P. P. P. Accretion is nearly 15% of PPP loans were forgiven by the SBA during the quarter and for the fourth consecutive quarter of healthy decline on the cost of our interest bearing deposits from.

The balance sheet items loan balances in Q4 were down $647 million or 3% due largely to process P. P. P loan forgiveness.

The transfer of $78 million on indirect auto loans to auto loans to loans held for sale and anticipated payoffs on the residential real estate portfolio.

Regarding deposits, we generated strong growth in non interest bearing DDA this quarter of $158 million or 2%, which once again afforded us the opportunity to reduce higher cost time deposits, which reduced by $402 million or 12% on.

On a net basis deposits were down $46 million and essentially flat with the totals from the prior quarter.

In addition, our cost of interest bearing deposits improved from 49 basis points to 38 basis points, a reduction of 11 basis points from the acquired prior quarter amount.

For the year loan balances increased $584 million or 3% driven by PPP production, which is partially offset by line of credit pay downs year over year commercial line of credit outstanding balances were down 29% not as a result of customer attrition, but due to customers using <unk>.

Available liquidity to pay down lines.

Also for the annual period deposit balances increased significantly by $2 1 billion or 10%. This was attributable to growth of $2 7 billion and noninterest bearing DDA $500 million in interest bearing DDA $240 million in money market and $440 million in saves.

<unk>.

Our planned run off of $1 8 billion and higher cost time deposits was primarily <unk>.

A driver on the substantial reduction in interest expense year over year.

Regarding capital we are pleased to announce to our shareholders. We were pleased to announce to our shareholders in November a dividend <unk> 21 per share remaining consistent with historical payments, while announced the timing of our next dividend soon.

Before passing to Ron I want to give a quick update on next gen. Two <unk> initiatives within.

Within balanced growth, we have an unique opportunity to take advantage of the positive brand awareness of our PPP work and results generated to attract both customers and talent.

Encores high touch client centric approach is highly attractive to customers as we're seeing in the robust new relationships relationships. We're attracting in addition, as I've said many times before because of this approach Umpqua provides a unique opportunity for bankers to be supported by our platform with all the products and services of much larger Institute.

<unk>, while being supported by our relationship focused culture.

As a result.

We've initiated an ambitious talent acquisition plan to attract top talent in key markets across our footprint and look forward to augmenting the terrific bench, we built over the last several years.

We're also seeing positive trends emerging our fee income products, including a growing pipeline strong price optimization and this past month, the highest amount of customer spend transacted through our commercial card product in the company's history.

Finally on balanced growth, we feel optimistic regarding loan growth in 2021 economic activity within our footprint is picking up in recent prospecting efforts has resulted in significant increases to our pipelines, which has returned us to pre pandemic levels.

Our human digital technology initiatives continue at full steam ahead in Q1, we will be leveraging the <unk> platform to execute the new round of PPP that was just introduced and in fact, starting we started taking applications. Just this week, it's early but our technology platform is already allowing us to meet PPP dimmed.

<unk> with less human involvement compared to last year. This is important as it allows our bankers more time to continue their focus on organic customer growth.

Also worth, noting we're preparing to launch our integrated receivables product for commercial customers.

We're working with our Fintech partners to add additional Apis to our catalog and finally, we will be upgrading our online banking user experience for commercial customers later this quarter.

With regards to operational excellence, we remain on track to meet the cost save guidance that was provided last quarter, specifically the sale of Umpqua on vessels scheduled to close late this quarter and I'm excited to formally begin the strategic partnership with Stewart partners.

We also completed the sale of three store locations in December in addition to the four store sale that was completed earlier in the fall, bringing the total store rationalizations in the second half of 2020 to seven.

On January 12 per this year, we announced plans to consolidate another 12 locations by the end of Q2 of 2021.

We remain on track to hit our goal of 30 to 50 store rationalization by the end of 2022.

As previously mentioned, we are addressing the consolidation of back office space to fit both the new working habits of our associates and reduced noninterest expenses.

Past quarter, we reduced back office real estate footprint by four properties totaling 45000 square feet and $1 8 million in savings that started on January one of this year.

Each quarter, we will provide updates on all next gen two dot or strategic levers as we continue to modernize the bank advanced customer experience and technology initiatives and improved operating leverage.

In summary, and as I mentioned in our earnings release yesterday on <unk> results from 2020 are a testament to the tremendous strength of this company.

Despite significant disruption and numerous challenges last year, our associates rose to the occasion time and time again, they are incredible adaptability resilience and passion has made a profound difference for our customers and communities and I couldnt be more proud on each and every one of them.

I believe reputations are built in times like these and I am confident the work. We did this past year will set us up for future success and now we're on taken away from the financials. 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.

Page 11 of the slide presentation contains a summary quarterly P&L.

Our GAAP earnings per share for Q4 was a record 68 higher than the prior record 57 from the third quarter driven.

Driven by PPP fee recognition continued strength in home lending.

No provision for loan loss and a low tax rate.

Excluding the MSR and CVA fair value adjustments, our adjusted earnings were <unk> 70 per share this quarter.

On the <unk>, excluding fair value charges, or <unk> was $154 million in Q4 or $598 million per the year up 26% from the $476 million in 2019.

Turning now to net interest income on slide 12 net.

Net interest income increased $18 million or 8% from Q3, driven primarily by a lift in PPP fee recognition and a 24% decline in interest bearing deposit costs.

Shown here is the quarterly interest and fee recognized from the PPP loan program.

Taken net to slide 13, our total net interest margin increased to 335%.

The margin, excluding discount accretion and PPP effects was $3, one 2% an increase of 12 basis points from Q3 related again to the fee recognition and a continued decline in our cost of funds.

A couple of other notes on a margin above on the page shows the impact from the bond premium amortization, which was down slightly from Q3.

And driving a portion of the NIM lift with the continued reduction in our costs from spring deposits exploring another 11 basis points to 0.38%.

For the month of December our interest bearing deposit costs was <unk> three 5%, we expect continued reductions in funding costs over the coming quarters.

Moving now to non interest income on slide 14.

Home lending finished the year with record results benefiting firm and acting as a natural hedge to a lower interest rate environment.

Non interest revenue was $79 million in Q4 and $271 million of revenue for the year.

Ex mortgage the other big moving parts in this quarter was the continued rebound in service charges and higher other SBA loan sale gains.

And miscellaneous income on the bottom of the page included the gain on store sales for Q3 and Q4.

For more on mortgage banking as shown on slide 15.

And also in more detail on the last two pages of our earnings release.

For sale mortgage originations remained robust at $2 1 billion, an increase of 49% from the fourth quarter, a year ago, and just under the Q3 record amount.

This reflects our positioning to capitalize on higher refinancing demand with lower long term interest rates.

Our for sale mix was 85% above our 80% target.

And the gain on sale margin remained strong this quarter at $4, 71% above our long term trends of the low to mid 3% range based on better pricing with constrained industry capacity and solid log pipelines.

Historically, the second and third quarter represented the high watermark for the year on production volume and pricing with some drop off into the winter quarters.

However, given the nature of this downturn continued low rates and strong demand for housing across our markets. We expect overall mortgage activity remained quite good for the next several quarters.

Specifically production in Q4 was a 50 50 split on purchase versus refinance compared to the 40 60 split for the full year.

We are encouraged by the purchase activity is the most recent trends we are closer to what we experienced a year ago pre drop in rates, we're purchasing Kevin from 55% of the production.

And as of quarter end, we serve is $13 billion of residential mortgage loans and the MSR is valued at 71 basis points.

Turning now to slide 16.

Noninterest expense was $211 million in Q4 up from $190 million in Q3 they.

So moving parts on the right side of this page moving the increase was non recurring this quarter.

The increases were related to higher variable performance comp comp with this year's results differ.

Deferred compensation liability increases in part due to the drop in rates.

And software technology exit costs, as we simplified various customer facing systems.

A charitable foundation contribution as we decided as a company is only 5% of our total expected PPP fees.

And other expense.

Offsetting this was a decline in home lending direct costs with a slight drop in total production volume this quarter.

Going forward, we expect first quarter 2021 expense to be below the Q3 2020 level with reductions later in the year as we remain focused on our nextgen to net zero strategy.

And for a minute on what I'd take you back to slide 11 and talk tax rate.

Our effective tax rate this quarter was negative 5%.

Related to the quarterly tax accounting intricacies stemming from the goodwill impairment back in Q1.

The effective tax rate will be back at the 25 ish percent level in 2021.

Okay now, let's go to the summary balance sheet beginning on slide 17, we.

We are intentionally holding higher levels of its spring cash given the volatile environment and.

And in the quarter at $2 2 billion.

Moving the average balance was up 13%.

This higher level of cash cost, our NIM three basis points, but gives us significant future optionality for funding loan growth or deleveraging certain liabilities.

Loans decreased 3% net for the quarter or 2% on average balances.

Within this PPP loan balances ended at $1 75 billion.

And forgiveness was received on approximately a quarter billion dollars during Q4, resulting in about 40% of the overall decline in loans this quarter.

Deposits remained flat on ending net average.

Within deposits, we had continued increases of 2% and non interest bearing demand.

And 4% in interest bearing demand.

Along with a 3% increase in savings deposits.

Offsetting this was a 12% decline in higher cost time deposits.

Broker declined $100 million in Q4, leaving us with just $150 million and brokered deposits, which will leave in the first half of 2021 with the sale of Umpqua investments.

Our total available liquidity, including off balance sheet sources at quarter end was $11 5 billion.

<unk> represented 39% of total assets and 47% of total deposits.

Frank will cover the loan book in a few minutes, but I want to take your attention forward to slide 22 on seasonal and our allowance for credit loss.

Our seasonal process incorporates a life of loans reasonable and supportable period for the economic forecast for all portfolios with.

With the exception of the C&I, which uses a 12 month reasonable and supportable period reverting gradually to the output mean thereafter.

Hence these forecasts incorporate some level of economic recovery in 2021 and beyond as most economic forecasts revert to the mean within a two to three year period.

As noted we use the November Moody's baseline economic forecast versus using the consensus forecast the prior two quarters.

We changed the baseline in Q4, given the market and outlook volatility post election and viewed it as more up to date vs. They lagged consensus forecast.

We expect to move back to the consensus forecast in early 2021.

Given the updated economic projections.

As a result of using the baseline there was no provision for credit loss in the fourth quarter.

Within our ACL as of year end, we had no net qualitative overlays above or below the model results.

Net charge offs for Q4 remained low at 20 million much lower than the models from earlier last year suggested and the majority of net charge offs. This quarter related to small ticket leases that were past due following rolling off their deferral period.

Which we expected and discussed with you last quarter.

We do expect a similar amount of small ticket leases and charge offs coming up in Q1.

And these have already been fully reserved for in our ACL.

The ACL at quarter end was $1 six zero percent moving this ratio was 174% excluding the government guaranteed PPP loans.

And these are economic forecast driving the reserve it will simply take the passage of time to see if net charge offs follow as modeled but to date. The models is simply overestimated. The actual net charge offs given at least a lag of three quarters.

Two final comments on seasonal first future provisions or Recaptures unexpected credit loss will be based on changes in economic forecasts, which could worsen or improve from the quarter and forecast used and second we have elected the full five year regulatory transition option for seasonal.

Lastly on slide 23 on what I'll highlight capital moving that all of our regulatory ratios remain in excess of well capitalized levels and all of the regulatory ratio has increased again over the prior quarter.

Our tier one common ratio of 12, 3% and our total risk based capital ratio was 15, 6%.

The bank level total risk based capital ratio was 14, 6%, which is the basis for our calculation of $558 million on excess capital.

This excess capital increased $115 million over the past quarter with our strong results net of the dividend.

We constantly forecast and stress excess capital.

And base and severe scenarios.

And with what we know today based on the economic forecast, we are very comfortable with our capital and liquidity position given uncertainties over the near to intermediate term horizon.

This level of capital gives us several opportunities to enhance returns for shareholders in the future.

The stronger organic loan growth or even the potential for share repurchases to improve future EPS.

The key items I want to reiterate is to wrap up my prepared remarks include first the significant available liquidity, we have of 11 5 billion.

Second our allowance for credit loss tangible 74% of non PPP loans and.

And lastly, our significant level of excess capital with our tier one common ratio of 12, 3%.

And total risk based capital ratio of 15, 6%.

And I will now turn the call over to Frank Namdar to discuss credit.

Thank you Ron I will also be referring to certain page numbers from our earnings presentation for those who want to follow along.

We have update on on referral information as of December 31 on slide four total loan balances that were on deferment at the end of the year represent two 4% of the loan book, we continue to work with customers within the guidelines on federal programs, such as the cares Act as well as individual state mandates we will.

<unk> to work with our customers on deferrals when they are needed and are very happy with our cure rate thus far of 87%.

On a portfolio basis, we are reporting 9% deferrals in commercial.

One 3% in commercial real estate.

One 7% in Fintech.

4% in consumer.

6% and residential real estate.

On slides five and six we again show specific segment totals and relevant characteristics for portfolios that have been impacted by COVID-19.

The following segments are highlighted.

Hospitality at two 4% of our portfolio Air transportation at <unk>, 6% restaurants at 6% and finally gaming at one 6% of our portfolio deferral information is also highlighted within these segments.

Hospitality, obviously remains an area that we continue to watch closely.

Occupancy levels have increased to the 40 ish percent level.

And with our extended stay on limited service properties continuing to perform above this level was occupancies ranging from 68% to 80%.

As I've stated previously this portfolios of low leverage with a very strong overall sponsorship to borrowers we have history with.

Slide 23.

Our loan portfolio, its geographic diversification and select underwriting criteria for each major area the.

The loan book remains granular in nature, and we are confident in our conservative and disciplined underwriting practices.

Slide 24 reflects our credit quality statistics.

Our nonperforming assets to total assets ratio decreased three basis points to two 4%.

Our annualized net charge off percentage to average loans and leases increased 11 basis points to three 5%.

As Ron mentioned, just a minute ago and as disclosed previously on our third quarter call.

This increase was due to approximately $18 million on leases that came out of deferment and we're unable to resume regular payments. We have identified another pool of approximately $18 million of leases that will also be charged off in Q1.

And then we expect the fintech portfolio to begin to return to the historical levels of three to three 5% in Q2 2021 on.

I'll now turn the call back over to court.

Okay. Thank you Frank and Ron for your comments on now we'll take your questions Chris.

Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

The first question comes from Jared Shaw of Wells Fargo Securities. Your line is open.

Hey, guys good afternoon.

Okay.

I guess, Ron maybe just first I just had a question on the on the.

PPP fees.

Could you remind us are you booking those based on the assumed average life or when you look at that $29 2 million is that.

That just the acceleration of the of what you actually received on forgiveness.

The total includes accretion within the underlying book over the life of the portfolio using the effective interest method, but it was about $16 million a pop in Q.

For the good chunk of that was related to.

Acceleration of remaining fees are running on accretive fees for the loans that were forgiven so and to the.

We certainly have more loans forgiven seen in Q1 Q2.

Ever net remaining deferred fee at that point in time, we'll also be accelerated.

Okay. So that $60 million is just what actually was received for forgiveness.

The majority of that was not all of it and then can.

Can you can you let us know how your what your positioning is for round two and what you think.

We can see for.

Volume out of that.

So hey, Jared this is Tory Nixon so we obviously we opened up.

Actually we started really on.

Monday, we integrated a technology in <unk> to help us with forgiveness and with this newest round of PPP stimulus.

As of this morning.

It is.

We have three.

<unk> 3767 applications for about $517 million on <unk>.

Average loan amount is about $37 million I think one of the on.

I'm, sorry, $37000, sorry, one of the I think it's important to note that.

This time around with our technology.

Going to use about 80% less.

People in and kind of working through the process and providing the help and support for our customers on our communities than last time.

Okay.

That's good color. Thanks.

Ron I guess shifting over to the margin and the outlook there.

Loan yields have held up pretty well.

How should we.

How should we expect from margin sort of ex PPP.

Trend over the next few quarters.

Ability to still I guess, maybe lower.

On the pricing.

Yes.

Definitely our goals internally with <unk>.

Ex PPP off at $3 12 base bond yields seemed to have stabilized.

The mix of a lot of our portfolio what impacted so much of it last year was higher premium paper that was refi.

Taking the hassle on but do definitely expect to see continued drop on a cost range from deposits again 35 bps for the month of December. So you can do the math on.

What that can look like in Q1, so near term, we expect to be around this level.

And then beyond.

So in the next quarter or two which will include.

On top of that levels from PPP fee acceleration along with continued accretion.

No one around the room, but also ran two beyond that will very much look forward to seeing continued organic loan growth push on.

Our loan to deposit ratio ex PPP backup on the day, 90% range to help civilized.

Credit on margin available over time.

That's good color. Thanks, and then just finally from me looking at the at.

The excess capital.

And just the rates I mean, you're clearly in a strong position.

And it seems like you clearly have enough to handle any growth that we should expect over the next year I guess why not be more aggressive.

Now with with.

With capital management, taking advantage of maybe an opportunity in buybacks or I guess, what's the other thoughts in terms of looking at M&A and maybe earning non organically.

Yes, great great Great comments mentioned in the prepared remarks, if you look back at 2020.

We're at about $200 million of that excess capital growth was the result of the non PPP loans drop, which we expect to come back.

We utilized but even absent that you're right.

Plenty of opportunities to be aggressive on the accounting for them inside share repurchase is definitely one of the options on that front I will also just mentioned.

That would be a process, we would go through with the regulators for approval just given the nature of retained earnings.

But definitely see the potential of of course of the year.

Okay. Thanks, I'll step back.

Our next question comes from Jackie Bohlen of <unk>. Your line is open.

Hi, good morning.

Okay.

I just wanted to touch on the broader point, though.

Gross.

Looking at some of the disclosures on the prepared remarks, I am thinking about the presentation you had last quarter that Gabe on April 12% gross.

I apologize if that comes on what all that multi layered but yeah.

Hi, it's movement with indirect transparency from assets pay down, but then you talked about the talent acquisition that Youre looking to do so just the question is on call for QC and how youre feeling about the growth outlook that you laid out last quarter.

Sure.

Jackie This is Tory again.

I think it is.

You're kind of positioned in the question it's multifaceted.

Couple of things happening I would certainly I think that.

We have some general uptick in the economy over the course of 'twenty, one and we feel good and confident about that we've got a we've been very successful over the last couple of years in acquiring some significant talent in the bank.

And we will continue to do that through the course of 'twenty, one and 'twenty two.

All of our major metropolitan markets, but also on some of our more.

We're all legacy Umpqua bank markets in which.

We spent quite a bit of time on the prospecting front built the pipeline up quite significantly in both of our middle market in our community banking lines of business. So feel really good about.

The activity level that we've seen by the field and the and the pipeline that we've built over the course of certainly in Q4 and I think we've demonstrated previously you've been able to grow the company on the lending side and we will we will continue to do that and bring new relationships into the bank.

Jackie it's cort.

Ill.

Yeah like Towry, just mentioned, we've always grown the company and I get.

The optics on the pressure that you all see with the balance sheet.

I think we all would agree 2020.

As an interesting here for commercial customers on like I mentioned and Tori on if you mentioned it.

And commercial loans.

Kind of re trading if you will come on down during year on mostly because of illiquidity that borrowers had and yada yada yada on those customers still remain here today than we have traditionally grown this company, we feel very very good but what we see on our pipelines and just a quick story and I'm not going to use names, we're talking right before the call.

And I think it's worth noting the power of PPP and this round, we picked up a significant relationship here in the Portland market from a bank you all cover.

A half a million dollars PPP loans are picking up a $20 million loan relationship. So as we continue to work that series of new customers of the bank and as companies continue to see.

A greater outlook the elections behind US you clearly can see the end of the pandemic sometime this year and his enthusiasm builds we will see commercial loan draws you will see the pipeline that <unk> built and you will see the conversion of these PPP customers new customers of the bank that we got in round, one let alone round two.

<unk> to on balance sheet, both depositors and borrowers and we feel extremely pleased of all the effort that this bank put into PPP round, one and it won't take as much effort on PPP around too, but we still think that there is a significant lift in this bank as growth potential.

In 'twenty, one and going into 'twenty two.

And and credit would you say that some of the single family run offs.

Tied to selling a larger portion of production.

Yes, I mean, we day falling into the portfolio.

I'm sorry to interrupt you we made a strategic decision in 19, it's been a while now to go more into agency sale and get out of portfolio for a lot of reasons and it was the right decision on albeit it's we're suffering a little bit on the balance sheet.

And I know you guys don't like necessarily as the revenue generation off of the secondary market activities, but it's driving.

Significant revenue gains our albeit we're given up something on the balance sheet, but we see a lot of opportunities more relationship opportunities on the balance sheet and it was a planned strategy of 19 and it just came a little quicker. So we are it was expected in Q4, and we see it very strongly like Ron mentioned that before.

Sale.

<unk> is going up which is good.

Indication that as long as volumes or excuse me on housing stock.

<unk> out there for sale, but we're coming into a strong part of the season. So yes. It was a planned event. We made plans for that 19 and it just was a little bit more than we expected in Q4, but February mi.

Okay, great. Thank you.

Credibly helpful and I just have one quick.

Keeping item for Ron on <unk>.

Just wanted to know how much the gain on sale from that.

The rise in Macquarie capital three stars.

Although as possible a $4 million.

Okay. Thank you.

Great. Thank you.

Your next question comes from Michael Young of Trust Securities.

Line is open.

Hey, Thanks for taking the question.

Good morning, Michael.

Maybe wanted to start Ron just on the on the net interest income outlook I think NIM kind of hard to predict at this point given the high levels of liquidity and all the noise from PPP et cetera, but maybe just looking at core kind of NII dollars. It seems like we've kind of bottomed out with portfolio growth on a loan portfolio growth from here.

We should see kind of expansion.

And both margin and dollars of revenue is that kind of the outlook you have as well on any additional color you would add to that.

I think you nailed it I mean that is definitely the goal of the plan, let's say the only other addition, ed but on there as well.

On that excess level of in spring cash gives us a lot of optionality for deleveraging higher cost liabilities.

Daily will turnaround and put that on the loan growth could even over and above recapturing.

Loan.

<unk> declined this past year as a growth. This year. So there still are several high costing liabilities include return that we can pay down with that so those are all on plan.

Okay, and then maybe switching over to the other side on expenses you know I don't know if it's better to talk about it from an efficiency ratio perspective, or maybe even in absolute dollar target.

Given kind of high levels of mortgage continuing into 2021, but.

As we move forward do you feel like it's still kind of a mid <unk> efficiency ratio that we should be expecting on an operating basis with all the technology adaptation and efficiency that's been gained there and real.

Estate reductions or.

Do you have anything tighter in terms of a firm dollar amount that we might exit the year at any any color. There would be helpful. I think as we think about progression throughout 2021.

And I think you nailed it I mean, the mid fifties is definitely on the goal overtime and again I wanted to talk about.

Q4 change off of Q3, I expect Q1 will be below Q3 levels and then youll see the impacts over the balance of the year from Covid.

<unk>, we've talked about home lending will be a wildcard depends on how strong that remains over the course of the year, but mix. It is definitely a long term goal.

Okay, and then just last one you've touched on kind of capital return and share repurchase.

I think historically you guys have been a little more philosophically opposed to that but capital levels are pretty high now doesn't seem like M&A is a near term interest so.

Just just any other kind of thoughts on on how youre thinking about kind of discussing that with the board and <unk> regulators.

A magnitude or timing or anything else that is kind of in your thought process there.

Yes, I mean definitely it's low.

On near term with the growth in excess capital gives us a lot of options, but share repurchase definitely has the potential we're looking at and again I will have to.

Note that will require regulatory approval, which we would expect would be.

Seamless process, we go through just given the excess amount on capital we generate on we expect to continue to generate.

Dividends, continuing obviously, the first priority, but I also want to get back to on organic growth side of love nothing more than we expect to see a chunk of that excess capital would be utilized here in 'twenty one.

We'll return of non PPP loan growth.

Okay. Thanks, I'll step back.

You bet. Thank you.

Our next question comes from Jeff Lewis of D. A Davidson your line is open.

Thanks. Good morning, just wanted to follow on the expense front just a map.

What I assume are somewhat one time software impairment.

Surety is that in occupancy and other respectively.

Correct.

Okay, great and if we could.

I know theres, some lumpiness to the initiatives in.

The current year with the sale of Umpqua investments and a third of the branches coming on.

Be completed by the end of Q2.

If we think about 50% of the cost saves over the balance of the year, you think thats fairly even over the course of the year, if we're tracking at or is it.

And it won't be back end loaded how would you.

If you characterize those savings throughout the year.

How would you put it yes, we'll definitely see a pickup in Q2, just given the timing of the UI sales store consolidations will be later on more Q3 items.

Underneath the covers though there are several other initiatives work on the way over the course of the year, So really when we talk about.

Half of the.

<unk> $39 million to $56 million of overall reduction being realized in 'twenty. One I think that's a good outlets over the course of the year really key is going to be looking at 'twenty two compared to 20 loans have been half of that on the bank to start with 2002, so there'll be there'll be some moving parts probably the biggest one that will kick in in Q2.

Okay.

Ron just to clarify that you're exiting Q1 at a run rate or it will Q2 will be up.

A good read on Umpqua investments out of those.

Q2 will be a good read on OCA on vessels. The other items will phase in over the course of the year.

Got it okay.

And then Cort on tour.

Both that referenced the pipeline and the build they're hopeful or just hoping to get.

On the.

Maybe the specific dollars, where the pipeline sits as it came into the end of the year versus year over year, and maybe even what that figure was as it bottomed and the pandemic just to kind of get a relative sense of what that pipeline was.

Yes, sure Jeff So.

Think about the all different lines of business on a combined we were about $3 billion and our loan pipeline at the end of 19, and we've we've kind of dipped down I think to a low of.

Probably just a shade under two and are now back up to three so we've kind of and most of that increase has been in the last three months. So the Q4 was it was a big lift in that in that dollar amount and it was primarily centered or it is primarily centered in our middle market and community banking business saw kind of share.

C&I.

Customer relationship business up and down the West coast.

Got it so I guess another way to put it I guess if youre entering.

On the current year.

In the engine that you've got some other leads on Pvp that maybe you didn't have year over year, maybe the outlook on growth it's potentially.

We could have not foreseeing the pandemic, but you.

Could say year over year, a brighter outlook than what you entered 'twenty is that fair.

I would I would say, yes, I felt in I think we all did at the end of 19, we had a lot of momentum going in the company on the certainly on the C&I side, but really across the company.

Certainly pandemic hit kind of took some of the obviously wind out of the sale.

I feel confident that we are back to where we were at the end of 19 and there are some other things in our favor I think are we spent a lot of time last couple of years hiring some very significant talent in the company that has gotten.

<unk> had some success and.

But we'll be more successful in the future and I think and we also have.

Some leads on some additional talent so as we've mentioned earlier I think in scripted.

We're going to look to hire some folks in are in those two lines of businesses over the course of the year.

<unk> to kind of expand.

The story of Umpqua Bank on what we do and what we've done and continue to build it.

Great. Thanks Duane.

Our next question comes from Steven Alexopoulos.

JP Morgan.

Your line is open.

Hi, everybody.

I wanted to start on the PPP loan fees. So if I look back to the third quarter, you had around $51 million on amortized processing fees right on PPP loans.

And then here on the fourth quarter PPP loan balances fell by $200 million thats around 10%, but you're recognizing $24 million of the PPP processing fees why was that so high in the quarter does that imply that there's around $25 million of unamortized processing fees left from round one.

Right.

Right around that on the balance sheet that will accrete in again over volume.

Next few quarters and part of that was effective interest method on the accretion. So it's not a straight line accretion over the life of the loans.

Okay. So does that imply on large drop in PPP balances Ron coming in <unk>.

Again that will be really dependent upon.

Forgiveness.

We expect forgiveness to pick up Q on Q2 compared to Q4 levels.

Okay and is that right there is about $25 million of remaining unamortized processing fees.

Ballpark, yes ballpark okay.

Thanks, and then if I shift from mortgage.

Add back the MSR valuation adjustment mortgage revenue declined around $14 million quarter over quarter, you guys called out on the slide deck $1 8 million reduction in direct home lending expenses around 13%.

<unk> of home lending costs not come down more in the direction of what's happened on revenue is there a more of a lag there.

Well again the comparison there would have been Q3, where the gain on sale margin was north of 5%. So it has nothing to do with the expense and the expenses based off the volume. So the better comparison from an expense standpoint will be off of.

The volume, which declined slightly from Q3 to Q4, but still with low oriented up to $2 $1 billion on the fourth quarter I would say that the pricing gains were over the top.

If any volume changes right just from a revenue standpoint, but on the expense line again tier two volume.

Okay. Okay that makes sense and then final question. So you guys have been active on store consolidations clearly our plan is to remain active given that.

Umpqua stores, where such a unique part of the historical story, what's the customer feedback then from the branches you guys have closed down so far.

Stephen's Cort.

Our feedback to date on.

You're always going to disenfranchise some customer so I don't I don't want to minimize that.

<unk> had some customer loss, but quite frankly, I think we have reported this in prior quarters, we've actually done a heck of a job well beyond what we forecast when we look at store consolidations impact to deposits our retention rate is.

As greatly higher.

And then what we forecast and is primarily due to the outreach and our go to application right. So we outreach every customer on a consolidated store closed store, we've talked to them. We onboard them on go to we get them digital mobile products that they need it at some communities, we leave a high functioning ATM or something thats pretty darn close to it.

Full service store plus go to so the feedback has actually been.

Better than you would expect for consolidating stores five to 10 miles away. Once again, it's not to say that we don't have some disenfranchise customers as you know I do have a phone in my office that is in every store and any customer at any time can dial eight on that phone and call me and I'm being very very transparent truthful I've had very few calls.

So I'm going to say of the 60% or 70 stores. We've closed since I've been sitting on in the corner office I've, probably had less than 10, certainly less than 10 calls on our stores that are negative I, probably had no why Stephen 30 about the handling.

Although that process, both from the associate experience and the lead back with technology.

Well, that's great inventory real quick just hardware card will give you a couple of statistics, it's kind of interesting to support kind of the go to pieces. Our tower transactions are down 26% year over year and our go to messaging is up 122%. So there's just a number of connections to go to messaging thats occurring some of that is just certainly kind of behavior.

On activity, but a lot of that is to <unk> point.

Yes.

<unk> with the go to banker as we consolidated store.

Thanks for the color I appreciate it.

Thanks, so much.

Yes.

Your next question comes from Brett Robinson of the Hockey Group. Your line is open.

Hey, good morning, everyone.

Hi, Brett.

Wanted to ask a question around the reserve and just thinking about credit. We obviously haven't had the need to make provisions for two quarters now and so theres been some reserve release on.

Part of that to loan portfolio, obviously has long hasnt hasnt grown it seems to me like.

If some of the more distressed portfolios continue to improve that there be a good argument for a solid amount on a reserve release over the next.

Two quarters can you just talk about.

Maybe the qualitative factors that I use Moody's, but just qualitative factors on a simple.

Reserve and then just kind of thinking about reserve release since we go through from here, assuming things do improve in some of those more impacted portfolios.

Yes, maybe business.

So on to the end of it yes, we do see continuing with moving the forecasts, we do we would expect to see.

The potential for some recapture or a decline in net expense.

Frankly, the charge offs haven't been anywhere near where the models are expected now the volatility over the course of the past share has been one thing to try to book.

This accounting standard in the same year. So we went to a baseline in March just gives consensus lagged useful we're back to consensus Q2, Q3 went back to a base line in Q4, given the election season.

I'll, let volatility on the outlook. So I do expect again moving back to consensus hearing.

Early in 'twenty, one if we do see again, some instability, which I'm sure everybody is very much looking forward to.

Yes, there is a potential for recapture and again, it's going to come down on the fact that.

Net charge offs, just anywhere near what the models have predicted.

I'd say, we would expect as an industry there should be a credit event.

Australia was we're not seeing it.

We've got that.

The volatility we've had within our fintech leasing portfolio, but that's been easily covered by the reserve so.

Feel good about the outlook on that front between.

Okay.

And.

Just thinking about the remaining deferrals I mean do you expect them to be active with a second round of PPP and just how are you managing these remaining deferrals in terms of our liquidity what's been the.

What's been the experience in terms of particularly the hotels on our restaurant portfolio.

Hi, Brett Frank number.

The deferral activity overall is really.

Has really slowed down dramatically there is not much going on right now.

For most of that most of the deferral activity is occurring.

Within the residential space.

And.

I think we have one we have one loan that is currently in process for for deferral.

In the C&I and.

Our real estate portfolios combined so so that's so that's plateaued and obviously all of our customers are absolutely welcome to apply for a PPP loan and they will be evaluated.

In that in that context.

But to date, where we are.

Very pleased with I'll say the <unk>.

Cure rate of the deferral activity, we've seen thus far.

Okay.

And then maybe one last one I think Cort you were.

Pretty optimistic that.

You know as we go through the year.

Umpqua has always been a growth story on which you are going to be able to grow would it be fair to assume that you think you'll be able to.

Replace the PPP loans.

I'm just trying to think about the portfolio day end of 'twenty.

<unk> 'twenty versus the end of 'twenty, one I mean, what's your presumption day that it would be higher than it was at the end of Av.

'twenty.

At the end of this year.

So I'm, sorry, I spoke to him.

Sorry, Brett asked a question so what our organic I'll call. It non PPP portfolio will be bigger than it was going into this year is that what you're asking no im sorry, maybe I didn't ask the question on El Corte I'm, just thinking about like replacing kind of the earning asset side to speak so $21 8 billion on at the end of <unk> 'twenty with the <unk>.

Organic growth on that replace essentially the PPP.

Portfolio is as that rolls off this year.

Yeah.

Let me answer as best I can.

Alright.

To continue to grow the bank.

At the pace prior to pandemic that we used to exhibit on a linked quarter basis normalizing very vibrant can you I'm not going to answer to your question totally price I'm, sorry, I'm going to tell you right now.

And im not trying to but.

We've seen a significant lift on our pipelines like Tory mentioned there is.

Don't convert a $3 billion per.

Pipeline to on balance sheet footings in 90 days just hasn't happened you know that these are commercial loans and there is some lag behind and we're going to we're going to continue to do what we've always historically done and convert that into.

Our fully integrated our customer relationship what I'd love to replace all of the PPP runoff, the new run off and grow on top of that on Heck, Yes, I'd love to but we're going to do what we've always done be diligent on credit and bring in the right customers worked the PPP, both first and second round and we're going to grow it.

Yes.

Whatever that pace turns out to be sorry, I, just I'd love to tell you what the number is I can't do it.

No I didn't mean to put you on the spot there I just wanted to get some color on that.

Helpful. Thanks, so much for all the color I appreciate I appreciate that put us well I love that I just don't know.

[laughter].

Our next question comes from Matthew Clark of Piper Sandler Your line is open.

Hi, good morning.

Yes.

Maybe getting back to the reserve question. If you think about your reserves on loans EFI ex PPP and ex.

On funded commitments is about 164%.

In a post Cecil World I guess, where do you think that or where do you feel comfortable.

Having that reserve bottom out.

<unk>.

Over the next year or two and then maybe said another way, what's the what's kind of the average.

Reserve, you're setting aside on new production.

Pending upon the mix or at least the mix you expect to put on going forward.

Good question Matt.

Obviously COVID-19.

Moving more probably ex.

Pandemic recession, you can see from it will be with us for.

The bulk of our gross but my gut would tell me it'd be back where we thought coming into 'twenty, we'd be average was around 1%, which if you think about our long term.

Horizon or trend on charge offs.

Probably four to five ex net charge offs on an interim basis 2025 bps, given the size and structure of our portfolio. So that would be my gut for post.

Return to normal economic.

Albeit et cetera, we will see how it plays out.

Okay.

Great.

Then.

Maybe.

I know you guys don't isolated in your slide deck.

Most other banks on I'll think do either but.

In terms of your office exposure can you just remind us what.

That exposure looks like.

From a region regional perspective.

Size perspective, and then.

Any updated thoughts on the health of that portfolio.

And that it's Frank.

Yes, so the total office exposure that we have institutionally here is just under 400 million.

Majority of it.

A great majority of it.

Southern California and.

And kind of the.

Puget Sound.

Region of Washington, So so very good very good markets.

Per se.

Or in.

Again, no no deferral activity arising out of that.

What does it look like going forward.

That's a question asked.

All the time and.

All I can say is that it will look different.

Hi.

Yes.

There is a school of thought that fewer people in offices, but larger but larger offices to accommodate Kennedy as hotel type concepts. So.

So more to come on that as we as we as we move forward through this pandemic and beyond it.

The hospitality portfolio.

<unk> continues to perform quite well.

We've only got.

Couple of three or four per.

Properties that are that are on deferral and.

At this point.

On the sponsorship behind those is quite is quite strong and can continue to support.

Those properties now with the extension of the cares Act I mean that that helps us and other financial institutions dramatically.

On our ability to to help these companies.

Companies and sponsors continue to bridge the gap until the vaccine guessing plan, we see some some recovery there.

Matthew Centuri, let me just add one piece to that.

Our office portfolio and we've got very strong sponsorship very low leverage and we're not looking to build the pipeline with office.

Property so we.

We have as Frank said, we have $4 million, but it's not something we're trying to.

Increase at all.

Understood Great. Thank you and then last one from me just on the pipeline can you remind us.

What's the probability of a loan closing for it to be considered in the pipeline and when you back test it what's the success rate of converting.

What's in the pipeline.

That's a that's a very difficult question to answer because it's unique for each line of business. So depending on the line of business Theres a different.

Really a different success rate and probability of closing.

And a time line from beginning to end, it's much quicker in our small multifamily business, where it can be 30 45 days.

In the larger real estate space. It can be two to three months in the C&I space. It could be everything from 30 days to 90 or 120. So it just it really varies.

When we look at the pipeline, there's two ways, we look at it we look at it with a probability weighting and then on weighted in.

So kind of use a formulaic as much data as we can to forecast growth for each month and each quarter. So this pipeline that I referenced earlier I mean, there's been a lot of growth its spread out among all of the different lines of business with a heavier concentration in the C&I space. So I think we'll see certainly some success in growth in Q1 and more so in Q.

Two in Q3 and Q4, so we'll have a I think a trajectory up as we go forward in the year.

Just curious what's that probability weighting.

On a weighted items.

They get it.

I can't give you an answer that is for across the entire pipeline.

I could that could drill down on havent from like a drill down and try and do it.

By line of business that's.

That's okay I thought you had no worries. Thank you.

I don't have in front of me.

No worries thanks.

Your final question comes from Michael Young of Trust Securities. Your line is open.

Hey, Thanks for the follow up question, Ron you'll have to forgive me, but I'm going to try to put a finer point on the maybe expense dollar amount.

I think in the past you've kind of alluded to maybe a <unk> run rate to exit the year I know a lot of this is going to be variable based on actual mortgage production volume given that we're starting at such a high point, but as we think about the moving pieces, maybe to your original guidance of $190 million or lower.

Kind of in line with <unk> levels to start the year and we've got I think about a $14 million reduction from.

The sale of Umpqua Securities piece.

Headed into <unk> and then the bulk of the additional cost saves coming in in the second half of the year for branch reductions.

Plus potentially a return to more normalized mortgage volume seems like we could maybe exit the year in the fourth quarter.

Much lower.

Dollar run rate maybe closer to it.

700, $710 million kind of annualized run rate as we exit the year is that there are there pieces I'm missing there.

Thank you nailed it.

Okay.

<unk> allows you to do that.

And then and then maybe Cort just just kind of high level, maybe just putting a kind of a bow on on all the communication and kind of objectives for the year could you just kind of really just tell us. What you are focused on what you hope to achieve this year now that kind of the hopefully the fog of war is lifted a little bit and just what you're focused on.

Actually I appreciate that's a great way to end up.

I don't know if theyre ranking necessarily on order, but.

First of all executing on next Gen. Two <unk> like we rolled out at the end of third quarter, which we've got great momentum on probably Hasnt caused me a lot of worry, but I worry about everything so continuing to execute on that including the consolidations in the sale of UI all of those individual pieces.

Would be probably the first priority I think.

Supporting Tory and his efforts and Frank to on.

Bringing that pipeline.

No.

And booking that including the second round of PPP on all the things, we're doing to support our communities and making sure that we execute on that.

I think the question that was asked a couple of times, what do we do with our excess capital on appreciate Ron's answers, we understand with your questions are coming from and spending some time more time than we probably spent in prior years, because we've been able to actually use that excess capital for organic growth I.

I understand where the questions are coming from so we are spending some time studying that and with all the answers that Ron gave you in his prepared remarks and answers to questions and then quite frankly, I'm a big believer in looking out five or six quarters. So I'm already working on next year.

Or are we going to end up this year, we have momentum what do we need to do to.

To continue what do we need to get more efficient more profitable. So I've already moved down to 2020 too much maybe to some of your sugar in but we have great momentum right now I feel very very good.

The next Gen <unk> out all the excess capital on our Optionality Victoria has been able to do so that's that's how we look at it that's how I look at it.

Okay. Thanks.

Got it.

That was on a final question I will now return the call to Mr. Farnsworth for closing remarks.

Okay I want to thank everyone for their interest medical holdings and attendance on the call. Today. This will conclude the call goodbye.

Yeah.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Good morning, and welcome to Umpqua Holdings Corporation fourth quarter earnings call I will now turn the call over to Ron Farnsworth Chief Financial Officer.

Okay. Thank you, Chris and good morning, and thank you for joining us today on our fourth quarter 2020 earnings call.

With me this morning are Cort o'haver.

The president and CEO of Umpqua Holdings Corporation.

Tory Nixon President of Umpqua Bank, and Frank Namdar, our Chief Credit Officer.

After our prepared remarks, we will then take questions.

Yesterday afternoon, we issued there is release discussing our fourth quarter and full year 2020 results.

We have also prepared a slide presentation, which we will refer to during our remarks. This morning. Both of these materials can be found on our website at Umpqua Bank Dot 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 page two of our earnings conference call presentation, as well as the disclosures contained within our SEC filings.

Now I'll turn the call over to Cort O'haver.

Okay. Thanks, Ron I will provide a brief recap of our performance and then pass to Ron to discuss financials, Frank Namdar will discuss credit and then we'll take your questions.

Q4, we reported earnings per share of <unk> 68 cents setting a company record for the second consecutive quarter.

This was an increase of 11 or 19% from the 57, we earned in the prior quarter and an increase of 32 or 89% from the 36, we reported from the fourth quarter of 2019.

These earnings were driven by another quarter of incredible production and our home lending Division.

<unk> accretion is nearly 15% of PPP loans were forgiven by the SBA during the quarter and for the fourth consecutive quarter, a healthy decline on the cost of our interest bearing deposits.

Turning to the balance sheet items loan balances in Q4 were down $647 million or 3% due largely to process P. P. P loan forgiveness, the transfer of $78 million on indirect auto loans to auto.

Auto loans to loans held for sale and anticipated payoffs on the residential real estate portfolio.

Guarding deposits, we generated strong growth in non interest bearing DDA this quarter of $158 million or 2%, which once again afforded us the opportunity to reduce higher cost time deposits, which reduced by $402 million or 12% on a net basis deposits were down $46 million and essentially flat with.

Totals from the prior quarter.

In addition, our cost of interest bearing deposits improved from 49 basis points to 38 basis points.

A 11 basis points from the acquire prior quarter amount.

For the year loan balances increased $584 million or 3% driven by PPP production, which was partially offset by line of credit pay downs year over year commercial line of credit outstanding balances were down 29% not as a result of customer attrition, but due to customers using.

Available liquidity to pay down lines.

Also for the annual period deposit balances increased significantly by $2 1 billion or 10%. This was attributable to growth of $2 7 billion and noninterest bearing DDA $500 million and interest bearing DDA $240 million in money market and $440 million on savings.

The planned run off of $1 8 billion and higher cost time deposits was primarily on.

A driver and a substantial reduction in interest expense year over year.

Before passing to Ron I want to give a quick update on Nextgen two <unk> initiatives within.

Within balanced growth, we have a unique opportunity to take advantage of the positive brand awareness of our PPP work and results generated to attract both customers and talent.

Of course high touch client centric approach is highly attractive to customers as we're seeing in the robust new relationships relationships we're attracting.

In addition, as I've said many times before because of this approach Umpqua provides a unique opportunity for bankers to be supported by a platform with all the products and services of much larger institutions, while being supported by our relationship focused culture.

As a result.

We've initiated an ambitious talent acquisition plan to attract top talent in key markets across our footprint and look forward to augmenting the terrific bench, we built over the last several years.

With less human involvement compared to last year. This is important as it allows our bankers more time to continue their focus on organic customer growth.

Also worth, noting we're preparing to launch our integrated receivables product for commercial customers.

We are working with our Fintech partners to add additional Apis to our catalog and finally, we will be upgrading our online banking user experience for commercial customers later this quarter.

With regards to operational excellence, we remain on track to meet the cost save guidance that was provided last quarter, specifically the sale of Umpqua on vessels scheduled to close late this quarter and I'm excited to formally began the strategic partnership with Steward partners.

On January 12 per this year, we announced plans to consolidate another 12 locations by the end of Q2 of 2021.

We remain on track to hit our goal of 30 to 50 store rationalizations by the end of 2022.

As previously mentioned, we are addressing the consolidation of back office space to fit both the new working habits of our associates and reduced noninterest expenses.

Past quarter, we reduce back office real estate footprint by four properties totaling 45000 square feet and $1 8 million in savings that started on January one of this year.

Each quarter, we will provide updates on all next gen two that or strategic levers as we continue to modernize the bank advanced customer experience and technology initiatives and improved operating leverage.

In summary, and as I mentioned in our earnings release yesterday on <unk> results from 2020 are a testament to the tremendous strength of this company.

I believe reputations are built in times like these and I'm confident the work. We did this past year will set us up for future success and now we're on take away to the financials. 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.

Page 11 of the slide presentation contains a summary quarterly P&L.

Our GAAP earnings per share for Q4 was a record 68 cents higher than the prior record 57 from the third quarter driven by PPP fee recognition continued strength in home lending no provision for loan loss and a low tax rate.

Excluding the MSR and CVA fair value adjustments, our adjusted earnings were <unk> 70 per share this quarter.

On the P. P NR for excluding fair value charges, or <unk> was $154 million from Q4 or $598 million per the year up 26% from the $476 million in 2019.

Turning now to net interest income on slide 12 net.

Net interest income increased $18 million or 8% from Q3, driven primarily by a lift in PPP fee recognition and a 24% decline in interest bearing deposit costs.

Shown here is the quarterly interest and fee recognized from the PPP loan program.

Taking that to slide 13, our total net interest margin increased to 335%.

The margin, excluding discount accretion and PPP effects was $3, one two percentage and increase of 12 basis points from Q3 related again to the fee recognition and a continued decline in our cost of funds.

A couple of other notes on margin the Bob on the page shows the impact from the bond premium amortization, which was down slightly from Q3.

And driving a portion of the Midland with the continued reduction in our costs from spring deposits for another 11 basis points to 0.38%.

For the month of December our interest bearing deposit costs was <unk> three 5%, we expect continued reductions in funding costs over the coming quarters.

Moving now to non interest income on slide 14.

Home lending finished the year with record results benefiting from an acting as a natural hedge to a lower interest rate environment.

Non interest revenue was $79 million in Q4 and $271 million of revenue for the year.

Ex mortgage to the other big moving parts in this quarter was the continued to rebound on service charges and higher other SBA loan sale gains.

And miscellaneous income on the bottom of the page included the gain on store sales for Q3 and Q4.

For more on mortgage banking as shown on slide 15.

And also in more detail on the last two pages of our earnings release.

For sale mortgage originations remained robust at $2 1 billion, an increase of 49% from the fourth quarter, a year ago, and just under the Q3 record them out.

This reflects our positioning to capitalize on higher refinancing demand with lower long term interest rates.

Our for sale mix was 85% above our 80% target.

Historically, the second and third quarter represented the high watermark for the year on production volume and pricing with some drop off into the winter quarters.

However, given the nature of this downturn continued low rates and strong demand for housing across our markets. We expect overall mortgage activity will remain quite good for the next several quarters.

Specifically production in Q4 was a 50 50 split on purchase versus refinance compared to the 40 60 split for the full year.

We are encouraged by the purchase activity is the most recent trends we are closer to what we experienced a year ago pre drop in rates, we're purchasing accounted from 55 per cent of the production.

And as of quarter end, we serviced $13 billion of residential mortgage loans and the MSR is valued at 71 basis points.

Turning now to slide 16.

Noninterest expense was $211 million in Q4 up from $190 million in Q3 they.

So moving parts on the right side of this page net any increase was non recurring this quarter.

The increases were related to higher variable performance comp comp with this year's results differed.

Deferred compensation liability increases in part due to the drop in rates.

From software technology extra costs as we simplified various customer facing systems.

A charitable foundation contribution as we decided as a company that only 5% of our total expected PPP fees.

And other expense.

Offsetting this was a decline in home lending direct costs with a slight drop in total production volume this quarter.

Going forward, we expect first quarter 2021 expense to be below the Q3 2020 level with reductions later in the year as we remain focused on our next Gen. Two day zero strategy.

And for a minute on what it would take you back to slide 11 and talk tax rate.

Our effective tax rate this quarter was negative 5%.

Related to the quarterly tax accounting intricacies stemming from the goodwill impairment back in Q1.

The effective tax rate will be back at the $25 per cent level in 2021.

Okay now, let's go to the summary balance sheet beginning on slide 17, we.

We are intentionally holding higher levels of interest bearing cash given the volatile environment and in the quarter at $2 $2 billion moving the average balance was up 13%.

This higher level of cash cost per NIM three basis points. So it gives us significant future optionality for funding loan growth or deleveraging certain liabilities.

Loans decreased 3% net for the quarter or 2% on average balances within this PPP loan balances ended at $1 75 billion.

And forgiveness was received on approximately a quarter billion dollars during Q4, resulting in about 40% of the overall decline in loans this quarter.

Deposits remained flat on endy net average within deposits. We had continued increases of 2% and non interest bearing demand and 4% in interest bearing demand along with a 3% increase in savings deposits.

Offsetting this was a 12% decline in higher cost time deposits.

Brokerage declined $100 million in Q4, leaving us with just wondering if $50 million of broker deposits, which will leave in the first half of 2021 with the sale of Umpqua investments.

Our total available liquidity, including off balance sheet sources at quarter end was $11 5 billion.

Representing 39% of total assets and 47% of total deposits.

Frank will cover the loan book in a few minutes, but I want to take your attention forward to slide 22 on seasonal and our allowance for credit loss.

Our CFO process incorporates a life of loans reasonable and supportable period for the economic forecast for all portfolios with.

With the exception of C&I, which uses a 12 month reasonable and supportable period reverting gradually to the output mean thereafter.

Hence these forecasts incorporate some level of economic recovery in 2021 and beyond as most economic forecasts revert to the mean within a two to three year period.

As noted we used the November Moody's baseline economic forecast.

Using the consensus forecast the prior two quarters.

We changed the base line in Q4, given the market and outlook volatility post election.

You do that is more up to date versus day lagged consensus forecast.

We expect to move back to the consensus forecast in early 2021.

Given updated economic projections.

As a result of using the baseline there was no provision for credit loss from the fourth quarter.

Within our ACL as of year end, we had no net qualitative overlays above or below the model results.

Net charge offs for Q4 remained low at $20 million much lower than the models from earlier last year suggested and the majority of net charge offs. This quarter related to the small ticket leases that were past due following rolling off their deferral period.

Which we expected and discussed with you last quarter.

We do expect a similar amount of small ticket leases from charge offs coming up in Q1.

And these have already been fully reserved for in our ACL.

The ACL at quarter end was $1 six zero percent moving this ratio was 174% excluding the government guaranteed PPP loans.

Two final comments on seasonal first future provisions or Recaptures unexpected credit loss, we based on changes in economic forecasts, which could worsen or improve from the quarter and forecast is and second we have elected the full five year regulatory transition option for seasonal.

Our tier one common ratio was 12, 3% and our total risk based capital ratio was 15, 6%.

The bank level total risk based capital ratio was 14, 6%, which is the basis for our calculation of $558 million in excess capital.

This excess capital increased $115 million over the past quarter with our strong results net of the dividend.

We constantly forecast and stress excess capital both on base and severe scenarios and.

And with what we know today based on the economic forecast, we are very comfortable with our capital and liquidity position given the uncertainties over the near to intermediate term horizon.

This level of capital gives us several opportunities to enhance returns for shareholders in the future vs.

Stronger organic loan growth or even the potential for share repurchases to improve future EPS.

The key items I want to reiterate is to wrap up my prepared remarks include first the significant available liquidity, we have a 11 5 billion.

Second our allowance for credit loss, Kansas, 174% of non PPP loans and.

And lastly, our significant level of excess capital with our tier one common ratio of 12, 3%.

And total risk based capital ratio at 15, 6%.

I will now turn the call over to Frank Namdar to discuss credit.

Thank you Ron I will also be referring to certain page numbers from our earnings presentation for those who want to follow along.

We have updated on referral information as of December 31 on slide four total loan balances that were on deferment at the end of the year represent two 4% of the loan book, we continue to work with customers within the guidelines of federal programs, such as the cares Act as well as individual state mandates we will.

<unk> to work with our customers on deferrals when they are needed and are very happy with our cure rate thus far of 87%.

On a portfolio basis, we're reporting 9% deferrals in commercial.

One 3% in commercial real estate.

One 7% in Fintech.

4% in consumer.

And 6% and residential real estate.

On slides five and six we again show specific segment totals and relevant characteristics for portfolios that have been impacted by COVID-19.

The following segments are highlighted.

Hospitality at two 4% of our portfolio Air transportation at <unk>, 6% restaurants at 6% and finally gaming at one 6% of our portfolio deferral information is also highlighted within these segments.

Hospitality, obviously remains an area that we continue to watch closely.

Occupancy levels have increased to the 40 ish percent level.

And with our extended stay on limited service properties continuing to perform above this level was occupancies ranging from 68% to 80%.

As I've stated previously this portfolios of low leverage with a very strong overall sponsorship to borrowers we have history with.

Slide 23.

Our loan portfolio, its geographic diversification and select underwriting criteria for each major area the.

The loan book remains granular in nature, and we are confident in our conservative and disciplined underwriting practices.

Slide 24 reflects our credit quality statistics.

Our nonperforming assets to total assets ratio decreased three basis points to two 4%.

Our annualized net charge offs percentage to average loans and leases increased 11 basis points to three 5%.

As Ron mentioned, just a minute ago and as disclosed previously on our third quarter call. This increase was due to approximately $18 million on leases that came out of deferment and we're unable to resume regular payments. We have identified another pool of approximately $18 million of leases that will also.

Be charged off in Q1.

And then we expect the fintech portfolio to begin to return to the historical levels of three to three 5% in Q2 2021 on.

I'll now turn the call back over to court.

Okay. Thank you Frank and Ron for your comments and now we'll take your questions Chris.

Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

The first question comes from Jared Shaw of Wells Fargo Securities. Your line is open.

Hey, guys good afternoon.

Okay.

I guess, Ron maybe just firstly I just had a question on the on the.

PPP fees.

Could you remind us are you booking those based on the assumed average life or when we look at that $29 2 million is that.

That just the acceleration of the of what you actually received on forgiveness.

The total includes accretion within the underlying book over the life of the portfolio using the effective interest method, but it was about $16 million a pop in Q.

For the good chunk of that was related to the acceleration of our remaining fees are really leaning on accretive fees for the loans that were forgiven. So.

We have more loans forgiven seen in Q1 Q2, whatever net remaining deferred fee at that point in time, we'll also be accelerated.

Okay, but that so that $60 million was just what actually was received for forgiveness.

The majority of that was not all day and then.

Can you can you let us know how you are what your positioning is for round two and then what you think.

You can see for.

Volume out of that.

So hey, Jared this is Tory Nixon. So we obviously, we opened up actually we started really on.

Monday, we integrated a technology in <unk> to help us with forgiveness and with this newest round of PPP stimulus.

As of this morning.

It is.

We have three.

<unk> 3767 applications for about $517 million on.

Average loan amount of about $37 million I think one of it on.

I'm, sorry, $37000, sorry, one of the I think it's important to note that.

This time around with our technology, there were going to use about 80% less.

People in and kind of working through the process and providing the help and support for our customers on our communities than last time.

Okay Alright.

Okay. That's good color. Thanks.

Yeah, Ron I guess shifting over to the margin and the outlook there.

Loan yields have held up pretty well.

How should we.

How should we expect from margin sort of ex PPP.

That trend over the next few quarters at risk with the ability to still I guess, maybe lower deposit pricing.

Yes.

Definitely our goals internally with.

Ex PPP off that $3 12 base bond yields seem to stabilize.

The mix of a lot of our portfolio.

So much of it last year was higher premium paper that was recently, taking the hassle on but do definitely expect to see continued dropping our costs from spend deposits again 35 bps for the month of December. So you can do the math on.

What that can look like in Q1, so near term, we expect to be around this level.

And then beyond.

I would say the next quarter or two which will include.

So on top of that level from PPP fee acceleration along with continued accretion.

Not only around the world, but also ran into beyond that we're very much look forward to seeing continued organic loan growth push on.

Our loan to deposit ratio ex PPP back up into the 90% range to help stabilize gross margin available over time.

Okay. That's good color. Thanks, and then just finally from me looking at the.

At the excess capital.

And just the rates I mean, you're clearly in a strong position.

And it seems like you clearly have enough to handle any growth that we should expect over the next year I guess why not be more aggressive.

Now with with capital management, taking advantage of maybe an opportunity in buybacks or I guess, what's the other thoughts in terms of looking at M&A and maybe going on organically.

Yes, great great Great comments mentioned in the prepared remarks, if you look back at 2020.

We're at about $200 million of that excess capital growth was a result of the non PPP loans drop, which we expect to come back.

Utilized but even absent that you're right.

Plenty of opportunities to be aggressive on loans accounting from inside and share repurchase is definitely one of the options on that front.

Also just mentioned.

That would be a process too we would go through with the regulators for approval just given the negative retained earnings.

But definitely see the potential of of course of the year.

Okay. Thanks, I'll step back.

Your next question comes from Jackie Bohlen of <unk>.

Line is open.

Hi, good morning.

What was cash.

I just wanted to touch on the broader points of gross.

Looking at some of that.

On the prepared remarks, I'm thinking about the presentation, you had last quarter that Gabe on April 12% gross.

And I apologize, if I can put a little bit multilayered, but yeah.

Quarter had movement with indirect transpires from FSFR pay down, but then you talked about the talent acquisition that youre looking to do so.

Just a question is on call for QC, and how youre feeling about the growth outlook that you laid out last quarter.

Jackie This is Tory again.

I think ex U.

As you kind of positioned in the question it's multifaceted.

There's a couple of things happening on certainly I think that.

And we will continue to do that through the course of 'twenty, one and 'twenty two in all of our major metropolitan markets, but also on some of our more.

We're all legacy Umpqua bank markets in.

We spent quite a bit of time on the prospecting front built the pipeline up quite significantly both on the middle market in our community banking lines of business. So feel really good about.

The activity level that we've seen by the field and the and the pipeline that we've built over the course of certainly in Q4 and you know I think we've demonstrated previously you've been able to grow the company on the lending side and we will we will continue to do that and bring new relationships into the bank.

Jackie it's cort.

Yeah like Towry, just mentioned, we've always grown the company and I get.

The optics and the pressure that you all see with the balance sheet.

I think we all would agree 2020.

It's an interesting here for commercial customers and like I mentioned and Tori on if you mentioned it.

On commercial loans.

Kind of re trading if you will come on down during the year were mostly because of liquidity that borrowers had and yada yada yada on those customers still remain here today than we have traditionally grown this company, we feel very very good but what we see on our pipelines and just a quick story and I'm not going to use names, we were talking right before the call.

And I think it's worth noting the power of PPP and this round, we picked up a significant relationship here in the Portland market from a bank you all cover make.

Making a half a million dollars PPP loans picking up a $20 million loan relationship. So as we continue to work that series of new customers of the bank and as companies continue to see.

Greater outlook the elections behind US you clearly can see the end of the pandemic sometime this year and as enthusiasm builds you will see commercial loan draws you will see the pipeline that <unk> built and you will see the conversion of these PPP customers new customers to the bank that we got in round, one let alone round to convert.

On balance sheet, both depositors and borrowers and we feel extremely pleased of all the effort that this bank put into PPP round, one and it won't take as much effort in PPP around too.

Still think that there is a significant lift in this bank as growth potential in 'twenty, one and going into 'twenty two.

And in card would you say that some of the single family run offs is tied to selling a larger portion of credit.

Meaning that there, yes, I mean, we see falling into the portfolio.

And I know you guys don't like necessarily as the revenue generation off the secondary market activities, but it's driving.

Significant revenue gains, albeit we're giving up something on the balance sheet, but we see a lot of opportunities more relationship opportunities on the balance sheet and it was a planned strategy of 19 and it just came a little quicker. So we are it was expected in Q4, and we see it very strongly like Ron mentioned that before.

Sale.

<unk> is going up which is good.

Indication that as long as volumes or excuse me on housing stock.

Stays out there for sale, but we're coming into the strong part of the season. So yes. It was a planned event. We made plans for that 19 and it just was a little bit more than we expected in Q4, but Doug worthy.

Okay, great. Thank you that stuff on.

Credibly helpful and I just have one quick little housekeeping items, Iran on Jeff.

Just wanted to know how much the gain on sale from that.

Whereas in Macquarie capital to restart.

Are those possible $4 million.

Okay. Thank you.

Great. Thank you.

Your next question comes from Michael Young of Trust Securities.

Line is open.

Hey, Thanks for taking the question.

Good morning, Michael.

We should see kind of expansion.

In both margin and dollars of revenue is that kind of the outlook you have as well on any additional color you would add to that.

I think you nailed it I mean that is definitely on the go all the plan, let's say the only other edition net but on there as well.

On that excess level of spring cash gives us a lot of optionality for deleveraging higher cost liabilities.

Daily will turn around and put that in the loan growth could even over and above recapturing.

The.

Loan.

<unk> declined this past year as a growth this year theres still our civil high costing liabilities include return that we can pay down with that so those are all contemplated.

Okay, and then maybe switching over to the other side on expenses you know I don't know if it's better to talk about it from an efficiency ratio perspective, or maybe even in absolute dollar target.

Given kind of high levels of mortgage continuing into 2021, but.

As we move forward do you feel like it's still kind of a mid <unk> efficiency ratio that we should be expecting on an operating basis with all the technology adaptation inefficiency, that's been gained there and real estate reductions or do.

Do you have anything tighter in terms of a firm dollar amount that we might exit the year at any any color. There would be helpful. I think as we think about progression throughout 2021.

Yeah, and I think you nailed it I mean, the mid fifties is definitely on the goal overtime and again I wanted to talk about Q.

Q4 change off of Q3, I expect Q1 will be below Q3 levels and then youll see the impacts over the balance of the income from.

Nextgen to that determination as we talked about home lending will be a wildcard depends on how strong that remains over the course of the year, but mix is definitely on origin well.

Okay, and then just last one you've touched on kind of capital return and share repurchase.

I think historically you guys have been a little more philosophically opposed to that but capital levels are pretty high now doesn't seem like M&A is a near term interest so.

Just just any other kind of thoughts on on how youre thinking about kind of discussing that with the board and <unk> regulators in terms of magnitude or timing or anything else that you know it was kind of in your thought process there.

Yes, I mean definitely it's near term with the growth in excess capital gives us a lot of options, but share repurchase definitely is a potential we're looking at and again I will have to.

Note that that will require regulatory approval, which we expect will be.

No.

Seamless process, we go through just given the excess amount on capital, we generate and we expect to continue.

The dividends continuing obviously the first priority, but then I also wanted to get back to on the organic growth side I'd love nothing more than we expect to see a chunk of that excess capital to be utilized here in 'twenty, one with will return of non PPP loan growth.

Okay. Thanks, I'll step back.

You bet. Thank you.

Your next question comes from Jeff Lewis of D. A Davidson your line is open.

Thanks. Good morning, just wanted to follow on the expense front just a map.

What I assume are somewhat one time software impairment.

Charity is that in occupancy and other respectively.

Correct.

Okay great.

If we could.

I know theres, some lumpiness to the initiatives in <unk>.

The current year with the sale of Umpqua investments and a third of the branches coming on.

<unk> be completed by the end of Q2.

If we think about 50% of the cost saves over the balance of the year do you think thats fairly even over the course of the year, if we're tracking at or is it.

And on a lumpy backend loaded how would you characterize those savings throughout the year.

How would you put it yes, we'll definitely see a pickup in Q2, just given the timing of the U S sales store consolidations will be later, we're more Q3 items.

Underneath the covers though there are several other initiatives work on the way over the course of the year, So really when we talk about.

Half of the.

<unk> $39 million to $56 million of overall reduction being realized from 'twenty. One I think that's a good outlet over the course of the year really key is going to be looking at 'twenty, two compared to 20 loans, having a halfway on the banks at the start of 'twenty. Two so there'll be there'll be some moving parts of the U S. Probably the biggest one that will kick in in Q2.

Okay.

Ron just to clarify that you're exiting Q1 at a run rate or it will Q2 will be up.

A good read on Umpqua investments out of those.

Q2 will be a good read on also on vessels. The other items will phase in over the course of the year.

Got it okay.

And then Cortland tour you both had referenced the pipeline and the build they're hopeful or just hoping to get.

<unk>.

Yes, sure Jeff. So if you think about the all different lines of business. So combined we were about $3 billion on our loan pipeline at the end of 19, and we've we've kind of dipped down I think to a low of <unk>.

In our middle market and community banking business saw kind of C&I.

Customer relationship business up and down the West coast.

Got it so I guess another way to put it I guess if youre entering.

On the current year.

In the engine that you've got some other leads on Pvp that maybe you didn't have year over year, maybe the outlook on growth it's potentially.

We could have not foreseen the pandemic, but you.

Could say year over year, a brighter outlook than when you entered 'twenty is that fair.

I would I would say, yes, I felt in I think we all did at the end of the 19, we had a lot of momentum going in the company on the certainly on the C&I side, but really across the company.

Certainly pandemic hit kind of took some of the obviously wind out of the sale.

<unk> had some success and.

But we'll be more successful in the future and I think and we also have.

Some leads on some additional talent so as we've mentioned earlier I think in scripted.

We're going to look to hire some folks in are in those two lines of business over the course of the year.

To kind of expand.

The story of Umpqua Bank on what we do on what we've done and continue to build it.

Great. Thanks Troy.

Our next question comes from Steven Alexopoulos.

J P Morgan.

Your line is open.

Hi, everybody.

I wanted to start on the PPP loan fees. So if I look back to the third quarter, you had around $51 million on amortized processing fees right on PPP loans.

And then here on the fourth quarter PPP loan balances fell by $200 million, that's around 10%. So youre recognizing $24 million of the PPP processing fees why was that so high in the quarter does that imply that there's around $25 million of unamortized processing fees left from round one.

Got it.

Right around that on the balance sheet that will accrete in again.

Over the next few quarters and part of that will flow the effective interest method on the accretion so it's not a straight line accretion.

Over the life of the loans.

Okay. So does that imply on large drop in PPP balances Ron coming in <unk>.

Sure.

Again that will be really dependent upon.

Forgiveness, which day.

We expect forgiveness to pick up Q on Q2 compared to Q4 levels.

Okay and is that right there is about $25 million of remaining on advertising processing fees.

Ballpark, yes ballpark okay.

And then if I shift to mortgage if I add back the MSR valuation adjustment mortgage revenue declined around $14 million quarter over quarter, you guys called out on the slide deck $1 8 million reduction in direct home lending expenses around 13% Y of home lending costs not come down more in the direction of what's happened on revenue is there.

More of a lag there.

Well again the comparison there would have been in Q3 were the gain on sale margin was north of 5%. So it has nothing to do with the expense because expenses based off the volume. So the better comparison from an expense standpoint will be off on the volume, which declined slightly from Q3 to Q4, but still with rounded up to $2 1 billion.

On the fourth quarter I'd say that is it.

Pricing gains were over the top.

If any volume changes right just from a revenue standpoint, but on the expense line again tier to the volume.

Okay.

Okay that makes sense and then final question. So you guys have been active on store consolidations clearly our plan is to remain active given that.

On post stores, where such a unique part of the historical story, what's the customer feedback then from the branches you guys have closed down so far.

Sure.

Hey, Stephen it's Cort.

Feedback to date.

You're always going to disenfranchise some customers. So I don't I don't want to minimize that.

As greatly higher.

Then what we forecast and is primarily due to the outreach and our go to application right. So we outreach every customer on a consolidated store closed store, we've talked to them. We onboard them on go to we get them digital mobile products, if they need it at some communities, we leave a high functioning ATM or something thats pretty darn close to it.

Full service store plus go to so the feedback has actually been.

So I'm going to say of the <unk>.

60% or 70 stores, we've closed since I've been sitting in on the corner office I, probably had less than 10, certainly less than 10 calls on our stores that are negative I, probably had no why Stephen 30 about the handling.

Although that process, both from the associate experience and the lead back with technology.

Well, that's great inventory real quick this target to try to give you a couple of statistic, what's kind of interesting to support kind of the go to pieces, our teller transactions are down 26% year over year and our go to messaging is up 122%. So there's just a number of of connections to go to messaging that's occurring some of that is just certainly kind of behavior on that.

But a lot of that is to <unk> point us connecting with the go to banker as we consolidate a store.

Thanks for the color I appreciate it.

Thanks, so much.

Your next question comes from Brett Robinson of the half the group your line is open.

Hey, good morning, everyone.

Hi, Brett.

Yes.

Wanted to ask a question around the reserve and just thinking about credit. We obviously haven't had the need to make provisions for two quarters now and so there has been some reserve release on.

Part of that is the loan portfolio, obviously has on Hasnt hasnt grown it seems to me like.

If some of the more distressed portfolios continue to improve that there be a good argument for a solid amount of reserve releases over the next.

Two quarters can you just talk about.

Maybe the qualitative factors that you use Moody's, but just qualitative factors on a simple.

And then just kind of thinking about reserve release since we go through from here, assuming things do improve in some of those more impacted portfolios.

Yes, maybe.

In terms of the end of it yet, but we do see continuing with moving forecasts, we do we would expect to see.

The potential for some recapture or decline in net expected loss is frankly, the charge offs have been anywhere near where the models are expected now the volatility over the course of the past share has been.

One thing to try to hook up.

This accounting standard in the same year. So we went to a baseline in March just because consensus lagged not useful.

Got to consensus Q2, Q3 went back to a baseline in Q4 given the election.

I'll, let volatility on the outlook. So I do expect again moving back to consensus hearing.

Early in 'twenty, one if we do see again, some instability, which I'm sure everybody is very much looking forward to.

Yes, there is a potential for recapture and again, it's going to come down on the fact that.

Net charge offs, just anywhere near what the model had predicted.

I would say, we would expect to as an industry there should be a creditable.

Australia was we're not seeing it.

We've got that.

Volatility we've had within our fintech leasing portfolio, but that's been easily covered by the reserve. So we feel good about the Alex on that front.

Between them.

Okay.

And just thinking.

And about the remaining deferrals I mean do you expect them to be active with a second round of PPP and just how are you managing these remaining deferrals on in terms of our liquidity what's been the.

What's been the experience in terms of particularly the hotels on our restaurant portfolio.

Hi, Hey, Brett Frank member.

The deferral activity overall is really.

Has really slowed down dramatically there is not much going on right now.

For most of it most of the deferral activity is occurring.

In the residential space.

And.

I think we have one we have one loan that is currently in process for for a deferral.

In the C&I and.

Real estate portfolios combined so.

So that's so that's plateaued and obviously all of our customers are absolutely welcome to apply for a PPP loan and they will be evaluated in that in that context, but but to date. We're just very pleased with I'll say the the cure.

Cure rate of the deferral activity, we've seen thus far.

Okay.

And then maybe one last one I think Cort you were.

Pretty optimistic that.

You know as you go through the year.

That umpqua has always been a growth story in which you are going to be able to grow.

Would it be fair to assume that you think you'll be able to.

Replace the PPP loans.

I'm just trying to think about the portfolio day end of 'twenty.

<unk> 'twenty versus the end of 'twenty, one I mean, what's your presumption day that it would be higher than it was at the end of Av.

'twenty.

At the end of this year.

So I'm, sorry, I said it.

Sorry, Brett asked a question said, what our organic I'll call. It non PPP portfolio will be bigger than it was going into this year is that what you're asking no im sorry, maybe I didn't ask the question on El Corte I'm, just thinking about like replacing kind of the earning assets. So to speak. So 21 8 billion on at the end of <unk> 'twenty with <unk>.

Organic growth on that replace essentially the PPP.

Portfolio is as that rolls off this year.

Yeah.

My my answer as best I can.

Alright.

We continue to grow the bank.

At the pace prior to pandemic that we used to exhibit on a linked quarter basis. Numerous very vibrant can you I'm not going to answer your question totally Brian I'm, sorry, I'm going to tell you right now.

Im not trying to but we've seen a significant lift on our pipelines like Tory mentioned there is you don't convert a $3 billion.

Pipeline to on balance sheet footings in 90 days just doesn't happen you know that these are commercial loans and there is some lag behind and we're going on we're going to continue to do what we've always historically done and convert that into.

On a fully integrated customer relationship what I'd love to replace all of the PPP run off the new run on often grow on top of that what heck, yes, I'd love to but we're going to do what we've always done be diligent on credit.

Bring in the right customers worked the PPP, both first and second round and we're going to grow it.

That whatever that pace turns out to be sorry, I, just I'd love to tell you what the number is I can't do it.

No I didn't mean to put you on the spot there I just wanted to get some sort of color on that.

Helpful. Thanks, so much for all the color I appreciate it I appreciate that put us well I love that I just don't know.

[laughter].

Our next question comes from Matthew Clark of Piper Sandler Your line is open.

Hi, good morning.

Yes.

Maybe getting back to the reserve question. If you think about your reserves on loans HSI ex PPP and ex.

Uh huh.

Unfunded commitments, it's about 164%.

In a post <unk> world.

I guess, where do you think that or where do you feel comfortable.

Having that reserve bottom out.

<unk>.

Over the next year or two and then maybe said another way, what's the what's kind of the average.

Reserve, you're setting aside on new production.

Depending upon the mix or at least the mix do you expect to put on going forward.

Good question Matt.

Obviously.

Moving more probably ex <unk>.

Pandemic recession, you can see from it will be with us for volume.

Parker, but my gut would tell me it'd be back where we thought coming into 'twenty, we'd be average was around 1%.

Which if you think about our long term.

Horizon or trend on charge offs is.

Probably four to five ex net charge offs on an interim basis 2025 bps, given the size and structure of our portfolio. So that'd be my gut for post.

Return to normal economic.

<unk> et cetera, and we'll see how it plays out.

Okay.

Great and then.

Maybe I know you guys don't isolated in your slide deck.

Most other banks I don't think do either but.

In terms of your office exposure can you just remind us what.

That exposure looks like.

From a region regional perspective and size perspective, and then.

Any updated thoughts on the health net portfolio.

And that has shrunk.

So the total office exposure that we have institutionally here is just under $400 million the great majority of it great.

A great majority of it.

Southern California and.

And kind of the.

Puget Sound.

Region of Washington, So so very good very good markets.

Per se.

We are in.

Again, no no deferral activity arising out of that.

What does it look like going forward.

That's a question to ask.

All the time and.

All of that I can say is that it will look different.

Hi.

Yes.

Business school of thought that fewer people in offices, but larger but larger offices to accommodate Kennedy's hotel type concepts. So.

So more to come on that as we as we as we move forward through this pandemic and beyond it.

The hospitality portfolio.

<unk> continues to perform quite well.

We've only got.

Couple of three or four per.

Properties that are that are on deferral and.

At this point.

On the sponsorship behind those is quite is quite strong and can continue to support.

Those properties now with the extension of the cares Act I mean that that helps us and other financial institutions dramatically.

On our ability to to help these countries companies.

Companies and sponsors continue to bridge the gap until the vaccine guessing plan, we see some some recovery there.

Matthew inventory, let me just add one piece of that.

Our office portfolio and we've got very strong sponsorship very low leverage and we're not looking to build a pipeline with office.

Property. So it's we have as Frank said, we had $4 million, but it's not something we're trying to.

Increase at all.

Understood Great. Thank you and then last one from me just on the pipeline can you remind us.

What's the probability of a loan closing for it to be considered in the pipeline and when you back test it what's the success rate of converting.

What's in the pipeline.

That's a that's a very difficult question to answer because it's unique for each line of business. So depending on the line of business Theres, a different really a different success rate and probability of closing.

On a timeline from beginning to end, it's much quicker in our small multifamily business, where it can be 30 to 45 days.

On the larger real estate space. It can be two to three months in the C&I space. It could be everything from 30 days to 90 or 120. So it just it really varies.

When we look at the pipeline, there's two ways, we look at it we look at it with a probability weighting and then on weighted and so.

So I think we will see certainly some success in growth in Q1 and more so in Q2 and Q3 Q4. So we'll have a I think a trajectory up as we go forward in the year.

Just curious with what's that probability weighting.

On a on a weight on this.

But again it really is.

I can't give you an answer that is for across the entire pipeline.

I could I could drill down on haven't financing drill down and try and do it.

On line of business.

That's okay I thought you had no worries. Thank you.

I don't have in front of me.

No worries thanks.

Your final question comes from Michael Young of Truest Securities. Your line is open.

Hey, Thanks for the follow up question, Ron you'll have to forgive me, but I'm going to try to put a finer point on the maybe expense dollar amount.

I think in the past you've kind of alluded to maybe a <unk> run rate to exit the year I know a lot of this is gonna be variable based on actual mortgage production volume given that we're starting at such a high point, but as we think about the moving pieces you know maybe to your original guidance of 190 million or lower.

Kind of in line with <unk> levels to start the year and we've got I think about a $14 million reduction from the.

The sale of Umpqua Securities piece.

Headed into <unk>.

And then the bulk of the additional cost saves coming in in the second half of the year for branch reductions.

Plus potentially a return to more normalized mortgage volume seems like we could maybe exit the year in the fourth quarter at a much lower.

Dollar run rate maybe closer to it.

700, $710 million kind of annualized run rate as we exit the year is that there are there pieces I'm missing there.

Thank you nailed it.

Okay.

[laughter] allows easier than I.

And then and then maybe Cort just just kind of high level, maybe just putting a kind of a bow on on all the communication and kind of objectives for the year could you just kind of really just tell us what you're focused on what you hope to achieve this year now that kind of the hopefully the fog of war has lifted a little bit in <unk>.

What you're focused on.

Actually I appreciate that's a great way to end up.

I don't know if theyre ranking necessarily on order, but.

First of all executing on next Gen. Two <unk> like we rolled out at the end of third quarter, which we've got great momentum on and probably doesn't cause me a lot of worry, but I worry about everything so continuing to execute on that including the consolidations in the sale of UI all of those individual pieces.

Would be probably the first priority I think.

Supporting Tory and his efforts and Frank too.

On bringing that pipeline.

Through and booking that including the second round of PPP on all the things, we're doing to support our communities and making sure that we execute on that.

I think the question that was asked a couple of times, what do we do with our excess capital I. Appreciate Ron's answers, we understand where your questions are coming from and spending some time more time than we probably spent in prior years, because we've been able to actually use that excess capital for organic growth.

Where are we going to end up this year, where do we have momentum what do we need to do to.

To continue what do we need to get more efficient more profitable. So I've already moved down to 2020 too much maybe just some of your sugar in but we have great momentum right now I feel very very good.

The next Gen two without all the excess capital on our Optionality, Victoria has been able to do so.

How we look at that's how I look on it.

Okay. Thanks.

Got it.

That was on a final question I will now return the call to Mr. Farnsworth for closing remarks.

Okay I want to thank everyone for their interest medical holdings on attendance on the call. Today. This will conclude the call goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

Now disconnect.

Q4 2020 Umpqua Holdings Corp Earnings Call

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