Q3 2021 Umpqua Holdings Corp Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin shortly.
Okay.
Ladies and gentlemen.
Today's conference is scheduled to begin shortly.
At this time.
James.
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Yes.
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Yeah.
Good day and welcome to the Umpqua Holdings Corporation third quarter 2021 earnings call at this time all participants are in a region.
Only mode. After the speaker's presentation, there will be a question and answer session. If you would like to ask a question you May press star one on your telephone keypad EQ I would now like.
You introduced the call I would now like to introduce Jackie Bohlen Investor Relations director for I'm going to begin the conference call Jackie the floor is yours.
Thank you Joanna.
And good afternoon, everyone. Thank you for joining us today on our third quarter 2021 earnings call with me. This morning are Kurt our Hayward, President and CEO.
I'm Gonna Holdings Corporation, Tory Nixon President of Umpqua Bank, Ron Farnsworth, our Chief Financial Officer, and Frank Namdar, Our Chief Credit Officer.
After our prepared remarks, we will take your questions yes.
Yesterday afternoon, we issued an earnings release discussing our third quarter 2021 results. We have also prepared a slide.
CEO of inflation, which we will refer to during our remarks. This morning.
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 provision of federal Securities law for a list of factors that may cause actual.
Slide for results to differ materially from expectations. Please refer to slide two of our earnings conference call presentation as well as the disclosures contained within our SEC filings I will now turn the call over to court. Okay. Thank you Jackie I'll provide a brief recap of our performance and then pass to Ron to discuss financials, Frank will discuss credit and then we'll take your questions.
Actual to the third quarter, we reported earnings available to shareholders of $108 million. This represents EPS of <unk> 49 per share compared to the 53 reported last quarter.
57, <unk> reported in the third quarter of last year with the decline due primarily to lower mortgage banking income as volume.
Normalized from historically high levels.
The focal point of an all around strong quarter was non PPP organic loan growth, which contributed to an increased net interest income from the prior quarter and highlights continued momentum at the bank.
The strong growth momentum, we experienced in the second quarter.
<unk> margins into the third quarter as non P. P. P organic loan balances grew $480 million, representing a quarterly growth rate of two 3% and over 9% annualized.
The quarter's expansion is all the more noteworthy as it comes on the heels of record quarterly loan growth for the company in the second quarter and continued.
To be balanced across all categories.
We continued to process the forgiveness of PPP loans, which declined $653 million or 47% from June 30, while this expected runoff drove a net reduction in loans and leases of $174 million. The headwind is winding down as remaining PPP.
<unk> only 3% of the loan portfolio.
We are very pleased with the growth in our non PPP loan book, which reflects successful talent acquisition brand momentum in our markets and the resulting healthy customer pipeline.
Regarding capital in August we paid our shareholders a dividend of <unk> 20.
<unk> per share consistent with historical payments and we repurchased 4 million shares at an average price of $19 50 in the quarter as part of our previously announced stock repurchase authorization in.
In total during the quarter, we returned $124 million to our shareholders through dividends and buybacks.
Capital levels remained very healthy.
Lever, we no longer intend to repurchase shares in the near term given our pending combination with Columbia banking system, which we announced last week.
Now for a quick update on next Gen. Two <unk> first balanced growth, we continue to leverage the positive brand awareness of our PPP work.
Or can the market disruptions that provided us opportunities to attract both customers and talent and our results demonstrate the strong momentum we've talked about for the past few quarters.
Elevated customer pipelines drove strong balanced growth and the momentum continues into the early days of this quarter as our pipelines remain strong.
Recently.
<unk> on boarded bankers in new teams continue to generate new business as they hit their stride and we continue to expand our relationships with PPP customers, who are now new to the bank.
Our human digital initiatives remain critical to our long term strategy as our customers continue to engage with us through digital channels at an accelerated pace.
We experienced increases of 3% more mobile deposit transactions, 39% more zelle transactions and 10% more daily sessions within our mobile banking app in the third quarter compared to the year ago period, notably.
Notably go to enrollments continued to increase and we are getting close to 100000 mark to.
100000 more.
Our human digital initiatives also support our commercial customer acquisition efforts.
This past quarter, we finalized a partnership with visa to be the first <unk> Phi in North America to launch visa commercial pay.
Mobile App based solution to offer instant issue virtual commercial cars for <unk>.
Point of sale and supplier payments.
Additionally, we launched our pilot of consolidated payments this will allow commercial and business clients to fully outsource their payments to umpqua.
D of formats, including checks ACTH wires and commercial card complete with Apis to over 160 different accounting platform.
<unk> with regards to operational excellence, we continue to build on the progress achieved since announcing our initiatives a year ago.
Third quarter run rate benefited from a mid Q2 sale of uncle investments to Stuart partners.
We are on track to consolidate an additional 15 stores by year end, which will bring the total rationalizations.
<unk> under next Gen. Two <unk> to 30 for this.
This moves us into our 30% to 50 store consolidation goal, which we originally laid out a year ago.
During the quarter. We also recorded some exit and disposal costs related to the exit of certain leases as we continue to rationalize other office space.
On slide.
Three of the earnings presentation, we showed a cumulative saves accomplished so far under next Gen. Under the next Gen <unk> program, and we and we expect to accomplish by mid next year.
One final comment before passing to Ron I want to reiterate remarks I made on last quarter's call regarding the growth opportunities ahead for Umpqua.
Which are further supported by our strong performance in the third quarter.
I remain highly enthusiastic that our growth prospects within our markets and the momentum from our banking teams will continue to spur growth and will enable us to deliver shareholder value over the long term.
While we are clearly focused on fine tuning our integration plans.
With Columbia, our bankers activities are not impacted and they will remain focused on delivering top notch service as we meet the needs of our current and prospective customers. We expect a strong finish here in 'twenty, one which will carry us into 2022.
And with that I'll turn it over to Ron Alright, 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 eight of the slide presentation contains our summary quarterly P&L or.
Our GAAP earnings per share for Q3 were 49.
Excluding MSR input in CVA fair value adjustments, along with exit disposal costs, our adjusted earnings were <unk>.
<unk> 51 per share this quarter.
For the moving parts as compared to Q2 net interest income increased 2%, reflecting the combination of higher average non PPP loan balances along with the continued reduction in our cost of funds.
We had a recapture of prior provision for loan loss of $19 million with improving.
Moving economic forecast slightly lower than the prior period recapture.
Noninterest income reflected the expected decline in mortgage banking revenue along with a flip in the swap derivative fair value.
And the gain on sale of uncle investments back in Q2.
And non interest expense reflected the lower mortgage banking activity.
We previously communicated our expectations for an annualized 2022 noninterest expense run rate in the range of $690 million to $710 million for Umpqua on a standalone basis. This outlook is unchanged and it was taken into consideration when we designed our cost savings forecast for the pending combination with Columbia banking system.
I want to reiterate this last point next gen related cost savings are separate from and before any and all cost savings related to our forthcoming combination with Columbia.
As for the balance sheet on slide nine inch.
Interest bearing cash increased to $3 $3 billion this quarter driven by continued strong deposit.
Okay.
This higher level of cash cost our NIM four basis points in Q3 as compared to Q2.
It gives us significant future optionality for funding ongoing loan growth or deleveraging certain liabilities.
We increased the bond portfolio of 7% as longer term yields were higher later in the quarter.
Into similar duration agency investments.
Cort mentioned previously our significant non PPP loan growth this quarter was offset by a PPP loan forgiveness.
While our deposits increased three quarters of $1 billion.
Our total available liquidity, including off balance sheet sources at quarter end increased.
Growth was $16 2 billion.
Representing 52% of total assets and 60% of total deposits.
Given us ample liquidity to fund future loan growth.
Before we get to the segments, let's jump forward to page 14 of the presentation.
Our NIM increased one basis point to.
Increased two 1% in Q3.
The NIM, excluding the impact of PPP loans, and discount accretion was 3.0% to 4%.
Fairly consistent for the last few quarters, which is great to see the impact of continued non PPP loan growth and deposits continuing to reprice lower offsetting the impact of the low rate environment.
Three of our cost of interest bearing deposits was 13 basis points in Q3, and 11 basis points for the month of September suggesting a continued decline in the overall quarterly costs in Q4.
Our non is spurring demand mix increased slightly to 41, 3% contributing to our total deposit cost of just eight basis points.
In Q3.
Okay now to our segment disclosures.
Starting with the core banking segment on page 10 of the presentation.
Or page 19 of the release.
Net interest income increased 2% sequentially driven by the strong non PPP loan growth and.
And continued decline in cost of funds.
I'll talk about seasonal in the provision in detail in a few minutes, but youll see here, we had a $19 million recapture this quarter from improving economic forecast.
Two lines down is the change in fair value on swap derivatives, knowing it was a gain of $1 4 million here in Q3 as long term interest rates increased this quarter compared with a loss of $4.
Back in Q4 as rates decreased in the second quarter.
Noninterest income of $38 3 million was lower than Q2.
Related primarily to the $4 4 million gain on sale of investments recognized in Q2, along with lower swap and M&A advisory fees in Q3.
The accident of disposal.
5 million $3 8 million relate to lease exits from recent store consolidations.
And a right of use lease asset impairment as we execute our return to work plan.
The direct non interest expense for the core banking segment was flat for the quarter.
And pre tax income for the core banking segment was $136 million represents 90.
Class a percent of the consolidated total.
The efficiency ratio in the core was consistent at 57%.
Turning now to page 11 of the presentation or page 20 of the earnings release, we show the mortgage banking segment five quarter trends.
To start we had $1 billion in total held for sale.
Five per quarter down from one in a quarter billion dollars in Q2.
The gain on sale margin was 3.07% down from Q2 as expected given a slowing mortgage market and decline in lock pipeline.
These two items resulted in a $33 million of origination and sale revenue noted towards the top left of the page.
Our servicing revenue was stable and.
And for the change in MSR fair value. The passage of time piece remained flat as expected while the change due to valuation inputs was a loss of <unk> 6 million.
Due mainly to higher pay down activity earlier in the quarter.
Non interest expense totaled $29 million for the quarter again this represents.
Volume direct to held for sale origination costs servicing costs, along with administrative and allocated costs.
The direct expense component of this was $20 million as noted on the right side of the page.
Representing 2.0% to 2% of production volume consistent and basis points with Q2.
It is important to note here the mortgage banking.
Presents and represents 5% of our pretax income.
Couple of finalized before I turn it over to Frank.
Let me take your attention forward to slide 23 on seasonal and our allowance for credit loss.
As a reminder, our seasonal process incorporates the life alone reasonable and supportable period for the economic forecast for all portfolios.
<unk> 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 economic recovery through the remainder of 2021 and beyond.
As most economic forecast reverts to the mean within a two to three year period.
We used the consensus economic.
<unk> segment has this quarter updated in August.
Overall, the forecast showed improvement in several key areas as the economy continues to reopen.
We included a $14 million overlay for various CRE portfolios to hedge against any potential near term slowdown or negative turns with the pandemic.
Net of this overlay.
Les we recognized $19 million recapture on prior provisions for loan loss.
Net charge offs for Q3 declined to $6 million much lower than the models from last year suggested and the majority of net charge offs this quarter related to the small ticket lease portfolio.
The ACL at quarter end was one 3%.
Look forth, noting this ratio is 127% excluding the government guaranteed PPP loans.
As 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 over the estimated the actual net charge offs given the lag of at.
<unk> headquarters.
Our day, one seasonal level was right at 1% on the ACL, which is about $57 million lower on the sales for non PPP loans and we are at currently.
All else equal this excess ACL will either be charged off in future periods. If the models are eventually proven correct.
Or be recaptured.
At least by were used for providing for future loan growth. If the economic forecasts continued to improve time will tell.
And lastly back on slide 21, I want to highlight capital.
That all of our regulatory ratios remain in excess of well capitalized levels are.
Our tier one common ratio was 12, 1% and our total risk based.
Third Anderson was 14, 9%.
The bank level total risk based capital ratio was 13, 4%.
And with that 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.
<unk> 24.
Capital risk credit quality statistics, our nonperforming assets to total assets ratio held steady at one 7% and though our classified loans to total loans ratio ticked up seven basis points to eight 1%. It remained in its fairly consistent range.
Our annualized net charge off percentage.
<unk> loans and leases decreased 14 basis points to one 1%.
Reflecting continued normalization of credit trends in the overall portfolio.
The impact portfolios ratio came in at one 2%, notably below its historical 3% to three 5% range during the quarter.
Reflective of higher levels of customer liquidity.
Rising out of stimulus improve.
Improving economies and the favorable impact of credit tightening that was put in place last year ex.
Excluding the impact of annualized net charge offs were just four basis points.
Slide 25 shows the total loan.
To ounces that were under firm and at the end of the quarter at only 6% of the loan book continuing to work its way down.
To wrap up we are very pleased with our credit quality metrics. This quarter, we remain confident in the quality of our loan book and we look forward to future continued growth back to your core okay. Thanks.
Frank and Ron for your comments, we will now take your questions.
Thank you, ladies and gentlemen, as a reminder, if you would like to ask a question you May Press Star then the number one on your telephone keypad.
Your first question is from Jeff Davis.
Jeff Your line is open.
Thanks, Good morning.
Yes.
Cort you mentioned you mentioned.
The focus of the team through that.
Deal announcement, and just wanted to kind of dig into that loan growth.
It's been pretty consistent in the in the high single digit range.
And.
The pace of new hires has been.
As you look at that and into 'twenty, two and along with the deal news.
Expectations on loan growth I guess simply put is just to get a handle of that given the moving pieces.
Well, let me just make a comment and then I'll kick it over to Tory. He can give you some greater details on the pipelines.
So.
We've hired some great people as we've talked about over the last three or four years or five years and they are to the point in the comments beginning to hit their stride.
And <unk> I'll talk about the robust pipelines that we've got we just see continued momentum.
The bank is going to operate at at our bank.
Bank for until we close this deal and there is significant momentum.
People, we've hired and with our customers and so we don't.
See that stopping even though we've got.
Our pending combination with with Columbia, but let me have Tory give you some greater details around the pipelines sure Hey, Thanks Cort Jeff.
Yes.
I mean, we.
Obviously hired a bunch of.
Folks in various markets as they as they kind of hit their stride pipelines are growing very nicely and our pipelines today are about $4 5 billion in total which is consistent with last quarter.
As Cort million of that is C&I and about $2 billion of that is real estate and the rest is.
Consumer and some other parts of the company.
So we feel really good about pipeline I mean, that's a significant growth kind of year over year, especially in the C&I space for us so.
<unk> got a lot of focus a lot of good activity field.
Feel very good about that high single digit loan growth as we move forward.
And towards the additional hires as that.
<unk>.
Business as usual or do you how do you approach it.
And at the close of the transaction is there a moratorium on all hires how do you how.
How do you treat data in the first half of the year.
Yes, no. It's just business as usual, we're continuing to move forward in fact, and we just hired a middle market executive in Phoenix, Arizona, as we look to expand outside of our traditional footprint. So there's a lot of infill in a variety of places whether it's from.
In the state of Washington, and Oregon, and all throughout California. So now we are actively looking in and.
Finding the right key talent that fits.
What we're looking for in the culture and device Wankel Bank can help us continue to grow the business.
Okay. Thanks.
The last.
One for Cort and kind of fluffy, but that.
Part of the <unk>.
<unk> also.
Kind of evolves retention of the team and then I guess, just any overall thoughts, but morale with with the news and how you think that the current team is.
Has viewed the transaction thanks.
We'll give you greater details as we move forward, it's only been a week since we made the announcement I'll just tell you that historically this bank has rallied around.
Things like this whether it's just recruiting people from banks that.
<unk>.
Our bankers and store associates, just want a different experience to opportunities to create.
A real regional West Coast player.
So we feel great momentum I know that Tory and I and the team are greatly lifted by the enthusiasm of all the associates here at the bank.
Okay. Thank you.
Thank you.
Your next question is from Jared Shaw of Wells Fargo Securities. Your line is open.
Hey, everybody. Good morning, Thanks for thanks for taking the questions.
Cort your enthusiasm is pretty pretty high you know you're seeing good growth this quarter.
We're hearing from some other.
Banks are seeing good.
Growth.
More towards the low single or I'm.
I'm, sorry, low double digit growth.
On the loan book looking out a little further what would have to happen for that to be triggered at <unk> is that.
Continued customer acquisition, but then you also need to see utilization rates go higher or I guess, what could drive what could drive.
Five additional optimism around loan growth let.
Let me have Tory comment on Jared then I'll follow up.
Yes, Jeremy.
<unk> EBIT, you kind of touched on a couple that certainly.
<unk> to help the cause I mean, we obviously will continue to acquire customers.
<unk> provides.
Debt capital for those for those customers as we move forward as we hire people will continue to do more and more business I think line utilization is something it's kind of interesting to look at.
Our C&I line utilization is about 27%, which has been relatively flat for.
For a few quarters.
If that were to even move up to historical levels at around $40. That's about a $270 million lift right, there and kind of the same in our HELOC portfolio, we continue to.
To grow the commitment side of our HELOC business, but we're at about 30% 36%.
Rent utilization, there and if we got to historic kind of pre pandemic levels of 45, that's about $300 million. So that utilization is something that certainly can help the cause as we move forward as customers continue.
To borrow more money than they do today.
But as you know.
Folks are flushed with cash.
Yes.
Certainly there is there will at some point in time that they'll start to borrow more on their lines and in Jared as we've talked about in prior quarters, and we've been able to attract talent at Umpqua bank at.
$30 billion to 25% to 30 since I've been CEO Mark <unk>.
That we offer.
Offer a great a different experience for a lender and obviously your lenders bring customers. That's why you hire great people and.
And that is really spurred our growth rate, we've really been able to kick.
Kick our growth in the gear and have gotten into new verticals by attracting teams of people I've been here 11 years story has been here seven or six.
We've.
We've really turned the corner on making this a fully integrated commercial bank and that's at $30 billion.
I'll just leave you with the idea that when we combined with Columbia, I think our ability to attract talent will really be.
Astronomical.
Okay. That's good color, thanks, and then.
Shifting over to.
You see some of the initiatives you announced.
Fees this quarter.
With payments and DSO whats, what some of the revenue opportunity around that and do you view that more as <unk>.
Building out our services for existing customer base or is this something that could actually drive.
Customer acquisition.
This is Tory, let me say that I think it helps support the a full fledged commercial relationships. So.
As we can as we prospect, whether it's to existing customers or to new customers. The.
The ability to lever.
Average add on technology, and technological solutions to how they run their companies and how they interact with their customers, which is critically important as part of them as part of the mix and I think as we as you saw through our <unk>.
Our virtual commercial card through the visa commercial pay just another really good product that supports.
As we're moving forward with Encino, which is our loan origination system in the company. So there's just a lot of things that are happening both inside the company and outside the company from product perspective that Leverages technology to make.
Our customers do their banking with us easier and.
And faster actually.
So it's very supportive as we prospect and as we grow the bank.
Okay. Thanks, and then just finally from me looking at the allowance ratio.
Yes.
Ron you mentioned, the $14 million of qualitative overlay still in there and then the fintech.
Data looks looks a lot better.
Should we be thinking that.
The qualitative overlays or gets bled back into the ratio just with growth or.
What's the how should we think about I guess the timing of.
<unk> back to the day, one as the broader economic backdrop is.
That's a good question right because I mean, when I think about it is what was our day one seasonal in a normalized environment because the questions as.
As we get back to a normalized environment that was roughly $57 million to get back to end of the 1%.
The 14 million overlay is part of it.
And it's just strictly going to depend upon economic forecast and how those forecasts change if they continue.
Bruce.
And then we wouldn't see charge offs should that balance then that would help support proving.
Provisions on future loan growth and our Recaptures and vice versa economic forecasts go the other way. So it's just going to take time, and which way the forecast change.
And should we expect the fintech losses to normalize.
Or is this sort of a new good level for that.
This is Frank Namdar.
I think youll continue to see them.
Normalized closer to that 3% range.
I alluded to in my comments I mean, this is specifically driven by.
Lives was $1 that are that are within the customers' hands right now.
And some of the tightening that was done.
Pre pre pandemic and shortly thereafter.
Is it.
The nature of the portfolio is.
It is a higher risk higher yield.
Jimmy.
That too to trend up.
But but more closer to that 3%.
Great. Thanks for all the color.
Mhm.
Your next question is from Brandon King of Choice Securities. Your line is open.
Hey, good morning.
Good morning.
Yes.
So multifamily are seeing strong momentum and very strong growth.
<unk> also pretty strong growth in Q2.
I Wonder if you could provide any color on what.
Is there was there any pull through from <unk> or could.
Could we see similar levels.
Brand growth in <unk> and potentially a 2022.
Brandon This is Tory.
There's a couple of places where we do multifamily lending in the company one is through our our real estate group primarily larger projects.
Projects a lot of it is.
Construction.
But a lot of term facility as well and then we have a multifamily division that does.
<unk> average deal size about $2 million.
That that part of the business. This multifamily division business has.
The activity in the pipeline has picked up pretty significantly here in.
In the past couple of quarters.
And it looks very strong right now feel really good about it.
Cited to see the team we've added some folks in the space both to kind of underwrite and process, but also to be.
Kind of RMS in customer facing people so.
We're seeing some nice expansion, there and think that that should.
Continue.
Okay.
Thank you.
And then for Ron.
If deposit growth continued to be strong and I am sorry purchase some securities in the third quarter.
Could you potentially increase the amount of purchases for securities based off the current.
Great Hi, al locating interest your outlook that you can get.
Definitely a possibility I mean.
<unk> primary focus will be continued.
Core organic loan growth as you've heard.
And core talked about which we are excited about continued prospects on that front.
But definitely you can see a little bit of that go into the bond portfolio.
So that's going to be it's going to be give and take the space off the outlook.
And those deposit flows.
And as I pointed out to you know in terms of the NIM impact. So it was down four bps. This quarter, just because of the higher average cash.
Down four bps in Q2 because of the higher ups cast is about eight bps compared to Q1, but I just want to point out that zero.
Zero impact or close to zero impact on the P&L. It's just in terms of NIM in <unk>.
Cash is a great thing when we look at the future opportunities for.
Continued growth in funding of the loan book.
Yes.
Okay.
And then lastly, this is from Corey I know, it's a different environment now, but there hasnt been a major acquisition.
Deal for Umpqua Sterling the acquisition, but I was wondering if there's any lessons learned from the integration process with Sterling.
What you could potentially.
Take over and knew that with the integration with Columbia banking system.
Yes, we had yes, we have quite a few and we learned some things.
Things and we will certainly incorporate those into our integration planning and there is always something you learn when you do something good and bad to be quite Frank but yes. We were there some things we wouldnt do again and there are some things that I think we did very very well relative to.
Sterling our focus on our customers, making sure.
Well served as always the key the retention of customers is always very very important.
Yes, and there was probably 27 acquisitions and prior to that that there is a lot of knowledge within this building that we will lean on heavily as we move forward.
Okay. Thanks for taking my questions.
<unk>.
Once again, if you would like to ask a question you May press Star one on your telephone keypad. Your next question is from Matthew Clark of Piper Sandler Your line is open.
Hey, good morning.
Hi, Matt.
Yeah.
So first one for me is around.
Their mortgage expenses.
I guess first how much of that.
Mortgage expense.
Does variable and what I'm trying to get at is.
The more.
The mortgage comp to closed volume I think remained relatively steady in the.
2% I think there's an expectation that that was going to step up pretty materially next year maybe.
Maybe in the two sevens and just want to get your updated thoughts there.
Yes, Matt this is Ron actually.
The $2 seven to two eight range was around the total expense, including the allocated as you see on the P&L, but from the standpoint of the drag.
Held for sale expense. The 202, you might see some lift because this annualized at $4 billion.
If we think we're going to be closer to three next year. It might go up slightly but probably not all the way after that two eight range.
And as the competency of that expense.
Roughly two thirds of it going to be.
Ram Commission based there are some fixed in there as well but.
The majority are still commission based.
Okay got it.
And then.
Just thinking about your <unk>.
California.
Just franchise relative to.
Colby, obviously just getting.
Northern California.
What are your thoughts around what might need.
To change or what might need to be added to kind of go about.
The way.
Columbia also does business going after kind of small middle market.
To what you guys do today.
In terms of your question around and what we've got with our presence in California, what would it take to incorporate the data in those locations matters.
Yes, I'm, just thinking about legacy Colby and the way they go about winning business in their markets relative to how you guys go about winning business on that in that.
Same space that small middle market business customer.
In terms of what what kind of capacity you guys have currently and what you might need.
And I like like we said on the Investor presentation. We view there is a lot of revenue synergies will provide some additional clarity as we move forward. We're only in the beginning phases of that.
So having the teams work together as we get it.
Our approval process and any eventual close but I.
I think we're planning on having an update call a joint call later this quarter.
Provide some additional clarity around that.
Okay, and then Ron any updated thoughts on.
Yes.
Matt the core margin outlook at least in the near term I may have missed it in your prepared comments.
Good point I think it'll be around this level and again the subjectivity as will be.
Continued deposit flow and loan flow.
We have another quarter of our cash balance to see the impact, but again very excited about.
The noninterest fee.
Well look.
And we'll probably have another quarter of <unk>.
PPP forgiveness and have a relatively smaller balance heading into 2022.
Do you have that remaining net fee amount for people and 1 million $21 million. Thank you.
Got it thanks Ed.
Thanks, Matt.
Loan growth again, if you would like to ask a question you May press star one on your telephone keypad.
Hum.
Yeah.
I am not seeing any more questions I would like to turn the call over back to management.
Thank you Joanna.
Thank you for your interest in Umpqua Holdings Corporation and participation on our third quarter 2021 earnings call. Please feel free to contact me. If you would like clarification on any of the items discussed today are provided in our presentation material. This will conclude our call by.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may.
Thank you next.
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Good day and welcome to the Umpqua Holdings Corporation third quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. If you would like to ask a question.
You May press Star one on your telephone keypad. Thank you I would now like to introduce the call I would now like to introduce Jackie Bohlen Investor Relations director for I'm going to begin the conference call Jackie the floor is yours.
Thank you Joanna good morning, and good afternoon, everyone. Thank you for joining us today on our third quarter 2021.
On earnings call with me. This morning are Cort o'haver, the president and CEO of Umpqua Holdings Corporation, Tory Nixon President of Umpqua Bank, Ron Farnsworth, Our Chief Financial Officer, and Frank Namdar, Our Chief Credit Officer.
After our prepared remarks, we will take your questions.
Yesterday afternoon, we issued an earnings.
Release discussing our third quarter 2021 result, 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 provision of Federal Securities Law for a list of factors that may cause actual results to differ materially from expectations. Please refer to slide two of our earnings conference call presentation as well as the disclosures contained within our SEC filings I will now turn the call over to court. Okay. Thank you Jackie I'll provide a brief recap of our performance and then pass drawn.
To discuss financials, Frank will discuss credit and then we'll take your questions.
For the third quarter, we reported earnings available to shareholders of $108 million. This represents EPS of <unk> 49 per share compared to the 53 reported last quarter and 57 reported in the third quarter of last year with the decline.
Klein due primarily to lower mortgage banking income as volume and margins normalized from historically high levels.
The focal point of an all around strong quarter was non PPP organic loan growth, which contributed to an increased net interest income from the prior quarter and highlights continued momentum at the bank.
Strong growth momentum, we experienced in the second quarter continued into the third quarter as non PPP organic loan balances grew $480 million, representing a quarterly growth rate of two 3% and over 9% annualized.
<unk> expansion is all the more noteworthy as it comes on the heels of.
Record quarterly loan growth for the company in the second quarter and continued to be balanced across all categories.
We continued to process the forgiveness of PPP loans, which declined $653 million or <unk>, 47% from June 30.
This expected runoff drove a net reduction in loans and leases of 170.
$74 million the headwind is winding down as remaining PPP balances only 3% of the loan portfolio.
We are very pleased with the growth in our non PPP loan book, which reflects successful talent acquisition brand momentum in our markets and the resulting healthy customer pipelines.
Capital and in August we paid our shareholders a dividend of <unk> 21 per share consistent with historical payments and we repurchased 4 million shares at an average price of $19 50 in the quarter as part of our previously announced stock repurchase authorization.
In total during the quarter, we returned 124 million.
To our shareholders through dividends and buybacks.
Our capital levels remained very healthy.
However, we no longer intend to repurchase shares in the near term given our pending combination with Columbia banking system, which we announced last week.
Now for a quick update on next Gen. Two <unk> first balanced growth.
We continue to leverage the positive brand awareness of our PPP work and the market disruptions that provided us opportunities to attract both customers and talent and our results demonstrate the strong momentum we've talked about for the past few quarters.
Elevated customer pipelines drove strong balanced growth and the momentum continues into the early days.
Days of this quarter as our pipelines remain strong.
Recently on boarded bankers in new teams continue to generate new business as they hit their stride and we continue to expand our relationships with PPP customers, who are now new to the bank.
Our human digital initiatives remain critical to our long term strategy as our customers continue.
To engage with us through digital channels at an accelerated pace.
We experienced increases of 3% more mobile deposit transactions.
39% more zelle transactions and 10% more daily sessions within our mobile banking app in the third quarter compared to the year ago period.
Notably go to <unk>.
Enrollment has continued to increase and we are getting close to 100000 Mark to the 100000 Mark.
Our human digital initiatives also support our commercial customer acquisition efforts.
This past quarter, we finalized a partnership with visa to be the first in North America to launch visa commercial pay a mobile app.
Based solution to offer instant issue virtual commercial cars for teenie point of sale and supplier payments.
Additionally, we launched our pilot of consolidated payments this will allow commercial and business clients to fully outsource their payments to umpqua and a variety of formats, including checks ACTH wires and commercial card.
<unk> complete with Apis to over 160 different accounting platforms.
With regards to operational excellence, we continue to build on the progress achieved since announcing our initiatives a year ago.
The third quarter run rate benefited from a mid Q2 sale of Umpqua investments to Stuart partners.
We.
We're on track to consolidate an additional 15 stores by year end, which will bring the total rationalizations under next Gen <unk> to 34.
This moves us into our 30% to 50 store consolidation goal, which we originally laid out a year ago.
During the quarter, we also recorded some exit and disposal costs related to the exit.
Of certain leases as we continue to rationalize other office space.
On slide three of the earnings presentation, we showed a cumulative saves accomplished so far under next Gen. Under the next Gen <unk> program, and we and we expect to accomplish by mid next year.
One final comment before passing to Ron.
Iterate remarks, I made on last quarter's call regarding the growth opportunities ahead for Umpqua, which are further supported by our strong performance in the third quarter.
I remain highly enthusiastic that our growth prospects within our markets and the momentum from our banking teams will continue to spur growth and will enable us to deliver shareholder.
I want to review over the long term.
While we are clearly focused on fine tuning our integration plans with Colombia, our bankers activities are not impacted and they will remain focused on delivering top notch service as we meet the needs of our current and prospective customers. We expect a strong finish here in 'twenty, one which will carry us into 2000.
Holder value and with that I'll turn it over to Ron.
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 eight of the slide presentation contains our summary quarterly P&L or.
Our GAAP earnings per share for Q3 were 49.
Excluding MSR.
Our input and CVA fair value adjustments, along with exit disposal costs. Our adjusted earnings were <unk> 51 per share this quarter.
For the moving parts as compared to Q2 net interest income increased 2%, reflecting the combination of higher average non PPP loan balances.
Along with the continued reduction in our cost of funds.
Funds, we had a recapture of prior provision for loan loss of $19 million with improving economic forecast slightly lower than the prior period recapture.
Noninterest income reflected the expected decline in mortgage banking revenue along with a flip in the swap derivative fair value.
And the gain on sale of uncle investments back in queue.
You too.
And non interest expense reflected the lower mortgage banking activity.
We previously communicated our expectations for an annualized 2022 noninterest expense run rate in the range of $690 million to $710 million for Umpqua on a standalone basis. This outlook is unchanged and it was taken.
Taken into consideration when we designed our cost savings forecast for the pending combination with Columbia banking system.
I want to reiterate this last point next gen related cost savings are separate from and before any and all cost savings related to our forthcoming combination with Columbia.
As for the balance sheet on slide.
Slide nine.
Interest bearing cash increased to $3 $3 billion this quarter driven by continued strong deposit growth.
This higher level of cash cost our NIM four basis points in Q3 as compared to Q2. So it gives us significant future optionality for funding ongoing loan growth or deleveraging certain liabilities.
We increased the bond portfolio of 7% as longer term yields were higher later in the quarter.
Into similar duration agency investments.
Cort mentioned previously our significant non PPP loan growth this quarter was offset by a PPP loan forgiveness.
Our deposits increased three quarters of $1 billion.
Our total available liquidity, including off balance sheet sources at quarter end increased to $16 2 billion.
Representing 52% of total assets and 60% of total deposits.
Given us ample liquidity to fund future loan growth.
Before we get to the segments, let's jump.
Forward to page 14 of the presentation.
Our NIM increased one basis point to 321% in Q3.
While the NIM, excluding the impact of PPP loans and discount accretion was 3.04% <unk>.
Fairly consistent for the last few quarters, which is great to see the impact of continued non PPP loan growth.
And deposits continuing to reprice lower offsetting the impact of the low rate environment.
Our cost of interest bearing deposits was 13 basis points in Q3, and 11 basis points for the month of September suggesting a continued decline in the overall quarterly costs in Q4.
Our non innerspring demand mix increased.
<unk> slightly to 41, 3% contributing to our total deposit cost of just eight basis points in Q3.
Okay now to our segment disclosures starting with the core banking segment on page 10 of the presentation.
Or page 19 of the release.
Net interest income increased 2%.
Sequentially driven by the strong non PPP loan growth.
And continued decline in cost of funds.
I'll talk about seasonal in the provision in detail in a few minutes, but youll see here, we had a $19 million recapture this quarter from improving economic forecasts.
Two lines down is the change in fair value on swap derivatives, knowing it was a gain of one.
$1 4 million here in Q3 as long term interest rates increase this quarter compared with a loss of $4 5 million back in Q4 as rates decreased in the second quarter.
Noninterest income of $38 3 million was lower than Q2 relate.
Related primarily to the $4 4 million gain on sale of loans or investments recognized in Q2.
Along with lower swap and M&A advisory fees in Q3.
The accident the disposal costs of $3 8 million relate to lease exits from recent store consolidations.
And a right of use lease asset impairment as we execute our return to work plan.
The direct non interest expense for the core banking segment.
Rent was flat for the quarter and.
And pre tax income for the core banking segment was $136 million represents 95% of the consolidated total.
The efficiency ratio in the core was consistent at 57%.
Turning now to page 11 of the presentation or page 20 of the earnings release, we show the mortgage.
Banking segment five quarter trends.
To start we had $1 billion in total held for sale volume this quarter down from one in a quarter billion dollars in Q2.
The gain on sale margin was 3.07% down from Q2 as expected given a slowing mortgage market and decline in lock pipeline.
These two items resulted in a $33 million of origination and sale revenue noted towards the top left of the page.
Our servicing revenue was stable and.
And for the change in MSR fair value. The passage of time piece remained flat as expected while the change due to valuation inputs was a loss of <unk> 6 million.
Due mainly to higher.
Pay down activity earlier in the quarter.
Non interest expense totaled $29 million for the quarter again. This represents direct held for sale origination cost servicing costs, along with administrative and allocated costs.
The direct expense component of this was $20 million as noted on the right side of the page.
Representing 2.0% to 2%.
Sent a production volume consistent and basis points with Q2.
It's important to note here the mortgage banking segment represents 5% of our pre tax income.
Couple of final items for I turn it over to Frank.
Let me take your attention forward to slide 23 on seasonal and our allowance for credit loss.
As a reminder, our seasonal process incorporates the life alone reasonable and supportable period for the economic forecast for all portfolios 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 economic recovery through the remainder of 2021 and beyond.
Beyond.
As most economic forecast reverts to the mean within the two to three year period.
We used the consensus economic forecast this quarter updated in August.
Overall, the forecast showed improvement in several key areas as economy continues to reopen.
We included a $14 million overlay for various theories.
Portfolios to hedge against any potential near term slowdown or negative turns with the pandemic.
Net of this overlay, we recognized $19 million recapture on prior provisions for loan loss.
Net charge offs for Q3 declined to $6 million much lower than the models from last year suggested and the majority of net.
Charge offs this quarter related to the small ticket lease portfolio.
The ACL at quarter end was one 3%, noting this ratio is 127% excluding the government guaranteed PPP loans.
As 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 module assembly over estimated the actual net charge offs, given there's a lag of at least five quarters.
Our day, one seasonal level was right at 1% on the ACL, which is about $57 million lower on the sales for non PPP loans and we are at currently.
All else.
Else equal this excess ACL will either be charged off in future periods. If the models are eventually proven correct or be recaptured Andrew are used for providing for future loan growth. If the economic forecasts continued to improve time will tell.
And lastly back on slide 21, I want to highlight capital.
Knowing that all of.
Of our regulatory ratios remain in excess of well capitalized levels are.
Our tier one common ratio was 12, 1% and our total risk based capital ratio was 14, 9%.
The bank level total risk based capital ratio was 13, 4%.
And with that I will now turn the call over to Frank Namdar to discuss credit.
Thank you.
Iran. I will also be referring to certain page numbers from our earnings presentation for those who want to follow along.
24 reflects our credit quality statistics, our nonperforming assets to total assets ratio held steady at one 7% and though our classified loans to total loans ratio ticked up seven.
Basis points to eight 1% it remains and it's fairly consistent range.
Our annualized net charge off percentage to average loans and leases decreased 14 basis points to one 1%.
Reflecting continued normalization of credit trends in the overall portfolio the.
The impact portfolio.
<unk> ratio came in at one 2%, notably below its historical 3% to three 5% range during the quarter reflective of higher levels of customer liquidity arising out of stimulus.
Proving economies and the favorable impact of credit tightening that was put in place last year.
Excluding this impact annualized net charge offs were just four basis points.
Slide 25 shows the total loan balances that were under firm and at the end of the quarter at only 6% of the loan book continuing to work its way down.
To wrap up we are very pleased with our credit quality metrics this quarter.
We remain confident in the quality of our loan book and we look forward to future continued growth back to you quarter. Okay. Thanks, Frank and Ron for your comments, we will now take your questions.
Thank you, ladies and gentlemen, as a reminder, if you would like to ask a question you May Press Star then the number one on your telephone keypad.
Your first question.
<unk> is from Jack Lilly's, David Chang Jackie Your line is open.
Thanks, and good morning.
Thank you Cort you mentioned you mentioned.
The focus of the team through that.
Deal announcement, and just wanted to kind of dig into that loan growth.
<unk> been pretty consistent.
And in the high single digit range and.
The pace of new hires has been.
As you look at that and into 'twenty, two and along with the deal news.
Expectations on loan growth I guess simply put is just to get a handle of that.
Given the moving pieces.
Well, let me just make a comment and then I'll kick it over to Tory. He can give you some greater details on the pipelines.
<unk>.
We've hired some great people as we've talked about over the last three or four years or five years and they are to the point in the comments beginning to hit their stride.
And <unk> I'll talk about the robust pipelines.
So we've got we just see continued momentum.
The bank is going to operate at.
At our bank for until we close this deal and there is significant momentum with people, we've hired and with our customers and so we don't see that stopping even though we've got a.
Our pending combination with <unk>.
With Columbia, but let me have Tory give you some greater details around the pipelines sure Hey, Thanks Cort Jeff.
As Cort mentioned I mean, we've.
Obviously hired a bunch of.
Folks in various markets as they as they kind of hit their stride pipelines are growing very nicely in our pipeline.
Pipelines today are about $4 5 billion in total which is consistent with last quarter about $2 billion of that is C&I and about $2 billion of that is real estate and the rest is.
Consumer and some other parts of the company so.
So we feel really good about pipeline I mean, that's a significant.
<unk> growth kind of year over year, especially in the C&I space for us so.
Got a lot of focus a lot of good activity feel very good about that high single digit loan growth as we move forward.
And Tory.
The additional hires as that.
Business as usual or do you.
How do you approach.
And at the close of the transaction any is there a moratorium on our hires how do you how do you treat that in the first half of the year yes.
Yes. It is.
Just business as usual, we're continuing to move forward in fact, and we just hired a middle market executive in Phoenix, Arizona as well.
We look to expand outside of our traditional footprint. So there's a lot of infill in a variety of places whether it's from in the state of Washington to Oregon, and all throughout California. So now we are actively looking in and.
Finding the right key talent that fits what.
What we're looking for in the culture.
<unk> device Wankel bank can help us continue to grow the business.
Okay.
Okay. Thanks.
Last one for Cort and kind of fluffy, but.
Part of the.
The hires also.
Kind of evolves retention of the team.
I guess, just any overall thoughts of morale with with the news and how you think that the current team is has viewed the transaction. Thanks.
Yeah, we'll give you greater details as we move forward, it's only been a week since we made the announcement I'll just tell you that historically this.
Bank has rallied around.
Things like this whether it's just recruiting people from banks that were.
Our bankers in <unk>.
<unk> associates, just want a different experience to opportunities to create.
A real regional West Coast player.
So we feel great momentum I know that Tory and I and the team are.
We lifted by the enthusiasm of all the associates here at the bank.
Okay. Thank you.
Hugh.
Your next question is from Jared Shaw of Wells Fargo Securities. Your line is open.
Hey, everybody. Good morning, Thanks for thanks for taking the questions.
Great No Cort.
<unk> is pretty pretty high you know you're seeing good growth this quarter.
We're hearing from some other.
We're seeing good growth.
Looking more towards low single or I'm.
Sorry, low double digit growth.
On the loan book looking out a little further what would have to happen for that to be triggered at.
Yeah.
<unk> customer acquisition, but then you also need to see utilization rates go higher or I guess, what could drive what could drive additional optimism around loan growth let.
Let me have Tory comment on the Jared and then I'll follow up.
Yes, Jeremy.
Jeremy you kind of touched on a cup.
Certainly.
Continue to help the cause I mean, we obviously will continue to acquire customers.
<unk> provides.
Debt capital for those for those customers as we move forward as we hire people will continue to do more and more business I think line utilization is something it's.
Oh interesting to look at it I mean.
Our C&I line utilization is about 27%, which has been relatively flat for a few quarters.
And if that were to even move up to historical levels at around $40, that's about a $270 million lift right there.
Our HELOC portfolio, we continue that too.
To grow the commitment side of our HELOC business, but we're at about 30%, 36% utilization there and if we got to historic kind of pre pandemic levels of 45, that's about $300 million. So that utilization is something that certainly can help the cause as we move forward.
The same customers continue look to borrow more money than they do today, but.
But as you know I mean folks are flushed with cash and.
Certainly there is there will at some point in time that they'll start to borrow more on their lines and then Jared as we've talked about in prior quarters and we.
As been able to attract talent at Umpqua Bank.
$30 billion to 25% to 30 since I've been CEO, Mark because we offer a great a different experience for a lender and obviously lenders bring customers. That's why you hire great people and that.
And that is really spurred our growth rate, we've really been able.
<unk>.
Kick our growth in the gear and have gotten into new verticals by attracting teams of people I've been here 11 years story has been here seven or six.
We've really turned the corner on making this a fully integrated commercial bank and that's at $30 billion.
So I'll just leave you with the idea that when we combined with Columbia I think our.
To lead to track talent will really be.
Astronomical.
That's good color, Thanks, and then.
Shifting over to the.
Some of the initiatives you announced on fees this quarter.
With payments and visa.
The revenue opportunity.
Our ability around that and do you view that more as.
Building out our services for the existing customer base or is this something that could actually drive customer acquisition.
This is Tory, let me say that I think it helps support the a full fledged commercial real.
So.
As we can as we prospect, whether it's to existing customers or to new customers.
The ability to leverage and add on technology and technological solutions to how they run their companies and how they interact with their customers, which is critically important as part of them as part of the <unk>.
Next I think as we as you saw through R. R.
Our virtual commercial card to the visa commercial pay just another really good product that supports that.
We're moving forward with Encino, which is a loan origination system in the company. So there's just a lot of things that are happening both inside the company and outside the company from product perspective that.
<unk> <unk> technology to make.
Our customers do their banking with us easier and.
And faster actually so it's very supportive as we prospect and as we grow the bank.
Okay. Thanks, and then just finally from me looking at the allowance ratio.
Yes.
Ron you mentioned, the $14 million of qualitative overlay still in there and then the fintech.
Data looks looks a lot better.
Should we be thinking that.
That qualitative overlay so it gets bled back into the ratio just with growth or.
<unk>.
What's the how should we think about I guess, the timing of approaching back to the day one as the broader economic backdrop is improvement was good question right because I mean, when I think about it is what was our day one seasonal in a normalized environment because the questions as.
As we get back to normalized environment that was roughly $57 million to get back to end of the 1%.
ACL to $14 million overlay is part of it.
And it's just strictly going to depend upon economic forecast and how those forecasts change as they continue to improve.
Then we wouldn't see charge offs should that balance then that would help support provision.
Provisions on future loan growth and a recaptures and vice versa economic forecast go the other.
So I was just going to take time, and which way the forecast change.
And should we expect the fintech losses to normalize or is this sort of a new good level for that.
This is Frank Namdar.
I think you'll continue to see them.
Normalized.
<unk> closer to that 3% range.
I alluded to in my comments I mean, this is specifically driven by.
Stimulus dollars that are that are within the customers' hands right now.
And some of the tightening that was done.
Pre pre pandemic and shortly thereafter.
Okay.
The nature of the portfolio is.
It is a higher risk higher yields and.
We expect that to trend up.
But but more closer to that 3%.
Great. Thanks for all the color.
Mhm.
Your next question is from Brandon King of Choice Securities. Your line is open.
Hey, good morning.
Good morning, Brian.
So multifamily are seeing strong momentum and very strong growth in COVID-19.
<unk> also pretty Shanghai, <unk> I Wonder if you could.
Bob.
Color on what the outlook is there was there any pull through from <unk> or <unk>.
Could we see similar levels of growth in <unk> and potentially in 2022.
Brandon This is Tory.
The there's a couple of places where we do multifamily.
Lending in the company one is through our our real estate group primarily larger projects.
Projects a lot of it is.
Is construction, but a lot of term facility as well and then we have a multifamily division that does.
<unk> average deal size about $2 million.
That that part of the business this multifamily division.
Any kosmos has.
The activity in the pipeline has picked up pretty significantly here in.
In the past couple of quarters and it looks very strong right now feel really good about it.
<unk> to see the team we've added some folks in in the space, both to kind of underwrite and process, but it also.
Also to be.
Kind of RMS in customer facing people so.
We're seeing some nice expansion, there and think that that should continue.
Okay.
Thank you.
And then for Ron.
If deposit growth continues to be strong and I am sorry.
<unk> heard some securities in the third quarter.
Could you potentially increase the amount of purchases for securities based off the current go.
Hi outlook and interest your outlook that you currently have.
Definitely a possibility I mean first and primary focus will be continued.
Core organic loan.
Parts as you've heard Tory and Cort talk about which we are excited about continued progress on that front.
But definitely you can see a little bit of that go into the bond portfolio is going to be it's going to be give and take the space off the outlook.
And those deposit flows.
And as I pointed out to you know in terms of the NIM impact so it was down 4%.
This quarter, just because of the higher average cash.
It is down four bps in Q2 because of the higher ups cast is about eight bps compared to Q1, but I just want to point out that zero impact or close to zero impact on the P&L. It's just in terms of NIM in cash is a great thing when we look at the future opportunities for.
Continued growth in funding of the loan book.
Loan growth okay.
Then lastly, this is from court I know, it's a different environment now, but there hasnt been a major acquisition or.
Deal for Umpqua Sterling acquisition, but I was wondering if there's any lessons learned from the integration process with Sterling.
What you could potentially.
Take over.
I knew that with integration with Columbia banking system.
Yes, we had yes, we have quite a few and we.
We learned some things and we will certainly incorporate those into our integration planning and there is always something you learn when you do something good and bad to be quite Frank but yes, we would.
Some things we wouldn't do.
Over in and there are some things that I think we did very very well relative to <unk>.
Sterling our focus on our customers, making sure that they're well served as always the key the retention of customers is always very very important, but yes, and there was probably 27 acquisitions and prior to that but there's a lot of knowledge.
Do again is building that we will lean on heavily as we move forward.
Okay. Thanks for taking my questions.
Thank you.
Once again, if you would like to ask a question you May press Star one on your telephone keypad. Your next question is from Matthew Clark of Piper Sandler Your line is open.
Hey, good morning.
Hi, Matt.
Yeah.
First one from me is around mortgage expenses.
I guess first how much of that.
Mortgage expense was variable.
But what I'm trying to get at is.
The.
Mortgage comp to closed volume I think remained relatively steady in the.
Around 2% I think there is an expectation that that was going to step up pretty materially next year maybe.
Maybe on the two sevens and just want to get your updated thoughts there.
Yes, Matt this is Ron actually.
<unk>.
The $2 seven to two eight range was around the total expense, including the allocated as you see on the P&L, but from the standpoint of the held for sale expense. The 202, you might see some lift because this annualize at $4 billion.
If we think we're going to be closer to three next year. It might go up slightly but probably not all the way up to that.
Two eight range.
And as that competency of that expense roughly.
Roughly two thirds of it going to be.
Commission based there are some fixed in there as well but.
The majority of spill Commission based.
Okay got it.
And then.
Thinking about your.
California based franchise relative to coal.
Colby, obviously, just getting into northern California.
What are your thoughts around what might need.
To change or what might need to be added to kind of go.
About.
The way.
Columbia also does business going after kind of small middle market.
Relative to what you guys do today.
So is your question around and what we've got with our presence in California, what would it take to incorporate the data in those locations matters MPW or Don.
Just yes, I'm, just thinking about legacy Colby and the way they go about winning business in their markets relative to how you guys go about winning business on that in that same space that small middle market business customer.
In terms of what what kind of capacity you guys have currently and what you might need.
And I would like like we said on the Investor.
Limitation review there is a lot of revenue synergies will provide some additional clarity as we move forward. We're only in the beginning phases of that Matt of having the teams work together as we get into the approval process and any eventual close but.
I think we're planning on having an update call a joint call later this quarter.
<unk> and <unk> to provide some additional clarity around that.
Okay, and then Ron any updated thoughts on.
The core margin outlook at least in the near term I may have missed it in your prepared comments.
Hi, Good point, I think it'll be around this level and again the subjectivity as will be.
Continued.
Sure.
Flow and loan flow.
If we have another quarter of higher cash balances, you'll see the impact, but again very excited about.
<unk> loan growth outlook.
We will probably have another quarter of.
PPP forgiveness and have a relatively smaller balance heading into 2022.
Do you have that.
To pump to net fee amount for people wanting 1 million $21 million. Thank you.
Thank you Ed.
Thanks, Matt.
Once again, if you would like to ask a question you May press fire one on your telephone keypad.
Yeah.
Uh huh.
Remaining high and not seeing any more questions I would like to turn the call over back to management.
Thank you Joanna.
Thank you for your interest in Umpqua Holdings Corporation and participation on our third quarter 2021 earnings call. Please feel free to contact me. If you would like clarification on any of the items discussed today are provided in our presentation material.
This will conclude our call by.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect.